Complete Guide to Payroll Compliance and T4/T5 Filing in Ontario

By Bader A. Chowdry, CPA, CA, LPA | Insight Accounting CPA

For businesses across Mississauga, the Greater Toronto Area, and throughout Ontario, payroll compliance represents one of the most critical regulatory obligations. Whether you’re a startup owner in Toronto hiring your first employee or a growing enterprise in the GTA managing a team of fifty, understanding payroll requirements, T4 slips, T5 returns, and CRA deadlines is essential to avoid penalties and maintain smooth operations.

This comprehensive guide walks Ontario business owners through everything they need to know about payroll compliance, from setting up source deductions to filing year-end T4 and T5 slips correctly.

Understanding Payroll Requirements for Ontario Businesses

Registering for a Payroll Account

Before you can pay employees in Ontario, you must register for a payroll account with the Canada Revenue Agency. This is a separate account from your business number and begins with RP0001 for your first location. Businesses in Mississauga and across the GTA can register online through CRA My Business Account, by phone, or by mail.

Once registered, you’re responsible for:

Calculating and remitting Canada Pension Plan (CPP) contributions
Deducting and remitting Employment Insurance (EI) premiums
Withholding federal and provincial income tax
Maintaining accurate records of all payroll transactions

Employee vs. Contractor Classification

One of the most common payroll compliance mistakes Ontario businesses make is misclassifying workers. The CRA has strict criteria for determining whether someone is an employee or an independent contractor, and the distinction matters significantly for tax purposes.

Employee indicators:

Control over work schedule and methods
Tools and equipment provided by the employer
Performance of services integral to the business
Prohibition from hiring subcontractors

Contractor indicators:

Freedom to choose work methods
Own tools, equipment, and workspace
Ability to subcontract work
Financial risk and profit opportunity

Misclassification can result in significant penalties. If you’re uncertain about worker status, consult a Mississauga CPA who can provide guidance specific to your situation.

Setting Up Your Payroll System in Ontario

Provincial vs. Federal Requirements

Ontario businesses must comply with both federal payroll requirements (administered by the CRA) and provincial requirements under the Employment Standards Act, 2000. Key provincial obligations include:

Minimum wage requirements (currently $17.20/hour as of October 2025)
Overtime pay calculations (1.5x regular rate after 44 hours weekly)
Vacation pay (4% for employees with less than 5 years, 6% for 5+ years)
Statutory holiday pay entitlements
Record retention (3 years minimum)

Federal Deductions and Remittances

Every pay period, Ontario employers must calculate and remit:

Canada Pension Plan (CPP): Both employee and employer contributions
Employment Insurance (EI): Employee premiums plus 1.4x employer portion
Federal Income Tax: Based on TD1 declaration and tax tables
Provincial Income Tax: Ontario-specific tax calculations

These remittances must be submitted to the CRA according to your assigned remittance schedule based on your average monthly withholding amount.

Integration with AI Accounting Intelligence

At Insight Accounting CPA Professional Corporation, our AI governance framework, currently patent pending, helps businesses across the GTA optimize their payroll systems. By integrating automated data capture with expert accounting review, we ensure accurate calculations while maintaining the human oversight that catches nuanced compliance issues that software alone might miss.

T4 Slip Preparation and Filing

What Goes on a T4 Slip

Every February, Ontario employers must prepare T4 slips for each employee who received income during the previous calendar year. The T4 Statement of Remuneration Paid reports:

Box-by-box essentials:

Box 14 (Employment Income): Total gross salary, wages, and taxable benefits
Box 16 (CPP Contributions): Employee’s share of CPP contributions
Box 18 (EI Premiums): Employee’s portion of EI premiums
Box 20 (RPP Contributions): Registered pension plan contributions
Box 22 (Income Tax Deducted): Total income tax withheld
Box 44 (Union Dues): Deductible union dues where applicable
Box 46 (Charitable Donations): Payroll deduction amounts

Common Code Boxes and Special Payments

Beyond the standard boxes, T4 slips may require additional codes for:

Code 30: Board and lodging benefits
Code 34: Personal use of employer’s automobile
Code 36: Interest-free or low-interest loans
Code 38: Security options benefits
Code 40: Other taxable allowances and benefits

Ontario employers must also report provincial-specific amounts in separate boxes, including the Ontario Health Premium collected through payroll deductions.

Deadlines and Penalties

The deadline for filing T4 slips with the CRA and providing copies to employees is February 28 each year (or the next business day if February 28 falls on a weekend). Late filing penalties apply:

$5 per day per slip (minimum $100, maximum $2,500)
Additional penalties for errors or omissions
Possible reassessment and interest charges

For businesses in Toronto and across the GTA facing tight deadlines, working with a local CPA accountant ensures timely filing and reduces error risk.

T5 Return Preparation and Requirements

When T5 Slips Are Required

T5 Statement of Investment Income slips are issued to individuals, corporations, or trusts that received certain types of income from your business, including:

Interest income ($50 or more annually)
Dividend payments from private or public corporations
Certain annuity payments

Unlike T4 slips which are required for all employees, T5 slips have a $50 threshold before reporting becomes mandatory.

Key T5 Boxes for Ontario Businesses

Box 10 (Actual Amount of Dividends): Eligible dividends from taxable Canadian corporations
Box 11 (Taxable Amount of Dividends): Grossed-up dividend amount
Box 12 (Dividend Tax Credit): Federal dividend tax credit amount
Box 13 (Interest from Canadian Sources): Bank or other interest earned
Box 25 (Interest Paid to Canadian Resident): Reportable interest amounts

T5 Filing Deadlines

Similar to T4 requirements, T5 slips must be filed with the CRA and provided to recipients by February 28 each year. The same penalty structure applies for late or incorrect filings.

Payroll Year-End Checklist for Ontario Businesses

December Through January Action Items

Verify employee information: Confirm all Social Insurance Numbers, addresses, and names are current
Review taxable benefits: Ensure all company vehicles, cell phones, and other benefits are properly valued and reported
Process final payroll: Confirm any year-end bonuses are included in the correct tax year
Calculate year-to-date totals: Verify CPP, EI, and tax withholdings match CRA expectations
Update payroll system: Install any year-end updates to your payroll software
Order T4/T5 forms: If using paper forms, order sufficient quantities from the CRA

February Deadlines

February 15: Deadline for amended 2024 T4/T5 submissions if corrections needed
February 28: T4 and T5 filing deadline with CRA
February 28: T4 and T5 distribution deadline to employees/recipients

Record Retention Requirements

Ontario employers must retain payroll records for at least three years after the year to which they relate. These records should include:

Dates of employment and termination
Hours worked and wages paid
Vacation time and pay calculations
All source deduction calculations and remittances
T4 and T5 copies

Common Payroll Compliance Mistakes in Ontario

Forgetting Taxable Benefits

One of the most expensive errors is failing to report taxable benefits. Common oversights include:

Company vehicle personal use
Employer-provided cell phones used personally
Interest-free or low-interest loans
Gym memberships
Transit passes and parking

These benefits must be calculated using CRA-prescribed methods and included in Box 14 income.

Incorrect CPP Calculations

CPP contributions require careful attention, especially for:

Employees turning 18 or reaching 70 during the year
Workers with pensionable employment and self-employment income
Prorated maximums for employees with multiple employers
The 2026 basic exemption amount of $3,500 annually

EI Exemption Errors

Certain employment arrangements are EI-exempt, including casual employment, family employment, and specific government programs. However, most Ontario private sector employment requires EI premiums, and incorrect exemptions lead to reassessment.

Missing the T4 Filing Deadline

With the February 28 deadline falling shortly after year-end, many businesses underestimate the time required for proper preparation. GTA business owners should begin T4 preparation no later than mid-January to ensure accurate completion.

Working with a Mississauga CPA for Payroll Compliance

The Value of Professional Payroll Services

While payroll software has made DIY payroll management more accessible, the complexity of Ontario employment standards, federal tax regulations, and year-end requirements creates significant room for error. Professional payroll services offer:

Accuracy assurance: Expert review catches errors before filing
Deadline management: Never miss a remittance or filing date
Penalty avoidance: Proper compliance prevents CRA penalties
Audit support: Professional representation if CRA questions arise
Strategic planning: Optimize compensation structures for tax efficiency

AI-Enhanced Payroll Processing

Insight Accounting CPA Professional Corporation combines decades of accounting expertise with our patent-pending AI governance framework. This hybrid approach delivers the speed and consistency of automated processing with the judgment and strategic insight that only experienced CPAs provide. For businesses across Mississauga, Toronto, and the GTA, this means payroll compliance handled correctly the first time.

FAQ: Ontario Payroll and T4/T5 Filing

Q: What happens if I miss the T4 filing deadline?

A: The CRA assesses penalties of $5 per day per slip, with minimum penalties of $100 and maximums reaching $2,500. Interest may also apply on any unpaid source deductions. Filing late can also trigger a payroll audit.

Q: Do I need to issue T4 slips for contractors?

A: Generally, noT4 slips are for employees only. However, if you’ve been incorrectly treating an employee as a contractor, the CRA may require you to issue T4s retroactively. When in doubt, consult a CPA to confirm worker classification before year-end.

Q: How do I correct a T4 after filing?

A: File an amended T4 return through CRA’s Web Forms or by paper. Use the letter code “A” for amended slips. The sooner you correct errors, the lower the risk of penalties or employee tax problems.

Q: What’s the difference between T4 and T5 income?

A: T4 income represents employment incomewages, salary, and taxable benefits paid to employees. T5 income represents investment incomedividends, interest, and certain other payments typically paid to shareholders or investors, not employees.

Q: Can I handle payroll myself, or do I need an accountant?

A: While small businesses with straightforward payroll sometimes manage internally, the complexity of Canadian payroll regulations, combined with severe penalties for errors, makes professional payroll services a wise investment for most Ontario businesses. The cost of professional services is typically far less than the cost of a single CRA reassessment.

Get Payroll Compliance Support in the GTA

Payroll compliance isn’t just about avoiding penaltiesit’s about protecting your business and ensuring your team is compensated correctly. Whether you need help setting up a new Ontario corporation’s first payroll system, filing T4s for a growing team, or navigating a complex CRA payroll audit, Insight Accounting CPA Professional Corporation provides expert guidance.

Contact Bader Chowdry, CPA, today:

(905) 270-1873

Our Accounting Intelligence approach, combining traditional CPA expertise with innovative AI governance frameworks, ensures your payroll compliance stays ahead of regulatory changes while freeing you to focus on growing your business.

Visit our About page to learn more about Bader Chowdry’s expertise and Insight Accounting CPA’s commitment to Ontario businesses, or explore our Tax Planning Services for comprehensive year-round tax strategy.

*The information in this article is for educational purposes only and does not constitute professional accounting advice. Consult a qualified CPA for guidance specific to your situation.*