Source Deductions

Source deductions are the required amounts withheld from employee pay in Canadian payroll and later remitted by the employer.

In most Canadian payroll conversations, this is the term people mean when they are talking about income tax withholding plus statutory deductions such as CPP and EI. It is the Canadian vocabulary for a core paycheck concept.

Why It Matters

Source deductions matter because they:

• reduce the employee’s net pay
• create part of the employer’s remittance obligation
• feed T4 and payroll-register totals
• help employees understand why gross pay and net pay are different

Readers often know the broad idea from the U.S. word “withholding,” but Canadian payroll uses a different term and ties it to its own forms, filing, and remittance workflow.

Where It Appears In Payroll Workflow

Source deductions appear after payroll has determined gross pay and the relevant earnings bases. In practice, payroll teams:

• calculate the employee pay for the period
• calculate income tax, CPP, and EI where applicable
• reduce net pay by those amounts
• record the totals in the payroll register
• remit the amounts through the employer’s payroll account
• carry the year-to-date totals into the T4 workflow

This is why source deductions connect the pay stub to the remittance and year-end side of payroll.

Practical Example

An employee has gross pay of $2,400 for the period. Payroll calculates income tax withholding and any applicable CPP and EI amounts, then subtracts those source deductions to arrive at net pay.

Those withheld amounts do not stay with the employer. Payroll later remits them and uses the year-to-date totals in year-end reporting.

Related Terms

• Withholding
• Employee Withholding
• TD1
• CPP
• EI
• Payroll Remittance
• T4
• Pay Stub
• Net Pay