Let’s walk through a demonstration of how taxes and contributions are calculated for a Canadian corporation based on its income statement. For simplicity, we’ll use fictional numbers and assume the corporation is subject to the federal corporate income tax rate and relevant provincial tax rates.
Here’s a sample income statement for our fictive corporation:
Revenue: $1,000,000
Cost of Goods Sold (COGS): $400,000
Gross Profit: $600,000
Operating Expenses: $300,000 (Payroll included: $200,000)
Other Income: $20,000
Interest Expense: $10,000
Net Income Before Taxes: $310,000
Income Tax Expense (Federal and Provincial): 15%
Now, let’s calculate the taxes and contributions:
- Federal Corporate Income Tax:
Federal corporate income tax is calculated based on the corporation’s taxable income before deducting any provincial taxes.
Taxable Income Before Taxes: $310,000
Federal Corporate Income Tax Rate: Let’s assume 10%
Federal Tax Payable: $310,000 * 10% = $31,000
- Provincial Corporate Income Tax:
Provincial corporate income tax rates vary by province. For this example, let’s assume a provincial tax rate of 5%.
Provincial Taxable Income: $310,000
Provincial Corporate Income Tax Rate: 5%
Provincial Tax Payable: $310,000 * 5% = $15,500
- Total Corporate Income Tax:
Total Corporate Income Tax = Federal Tax Payable + Provincial Tax Payable
Total Corporate Income Tax = $31,000 + $15,500 = $46,500
- Payroll contributions
Here’s a breakdown of the employer’s payroll contributions for a $200,000 salary:
- Employment Insurance (EI):
The employer’s contribution rate is 1.4 times the employee’s rate.
For the employee portion, the maximum annual contribution is reached at the salary threshold.
So, the employer’s contribution to EI would be $889.54 * 1.4 = $1,245.36.
- Canada Pension Plan (CPP):
Similar to EI, the employer’s contribution rate is 1.4 times the employee’s rate.
For the employee portion, the maximum annual contribution is reached at the salary threshold.
So, the employer’s contribution to CPP would be $3,166.45 * 1.4 = $4,433.03.
- Other Employer Costs:
Besides CPP and EI, employers may have other expenses related to employing staff, such as contributions to provincial health care plans, workers’ compensation insurance, and any employer-sponsored benefits like health insurance or retirement plans.
So, in summary, the employer’s contributions on top of the $200,000 salary would include:
- Employer portion of EI: $1,245.36
- Employer portion of CPP: $4,433.03
Other employer costs (varies by employer and province/territory).
These figures represent the employer’s contributions to statutory payroll deductions and do not include other potential costs associated with employing staff.
