Canadian Government Tax Rules for a Live-In Nanny

Hiring a nanny in Canada requires employer registration.

If you have decided to hire a live-in nanny, Canadian law requires you to register with the Canada Revenue Agency as an employer and to remit income taxes, Canada Pension Plan contributions and employment insurance premiums. Your nanny will need a Social Insurance number, a nine-digit number required to work in Canada.

Register With Canada Revenue Agency

Register with Revenue Canada before hiring a nanny.

To register with Canada Revenue Agency, apply for a business number and then for a payroll deductions account. You will find application forms your local Canada Revenue office or on the Internet. You can register in person or by phone, fax, mail or Internet. Canada Revenue will mail you your business number and source remittance forms after it accepts your application. This process usually takes four to six weeks.

Your Nanny's Social Insurance Number

If your nanny does not have a Social Insurance number, ask her to apply to the government of Canada for a temporary or permanent number. She can do this through your local Service Canada office or on the Internet. Ask your nanny to complete the TD1 form.

Calculating Source Remittance

Carefully read all forms before submitting your remittance to Canada Revenue.

Canada Revenue Agency provides an online calculator on its website that you can use to figure the amount of federal and provincial income tax, Canada Pension Plan contributions and Employment Insurance premiums to withhold from your nanny's pay. To ensure a correct calculation, select the correct province, pay period and frequency of pay before proceeding to the next screen to enter your nanny's payment information. Canada Revenue Agency does not guarantee the accuracy of its online calculator. For a more precise calculation, use the tables that are available for download on its website.

Your payment to Canada Revenue Agency for the Canada Pension Plan and Employment Insurance Premiums includes two parts, the nanny's contribution and the employer contribution. For Canada Pension Plan, the employer contribution is the same amount as the employee's. For Employment Insurance premiums, the employer contribution equals 1.4 times the employee contribution. Refer to the employer summary part of the online payroll calculator or the applicable section of the tables for these amounts.

Note that providing your nanny with accommodations for free or at a reduced rate is a taxable benefit. Estimate the fair market rate for the accommodation or the difference between what your nanny pays you and the market rate, whichever applies, and enter it into your calculation as a taxable benefit.

Submitting your Payment

Submit source remittance to Canada Revenue Agency monthly, on or before the 15th day of the month. Use a cover letter to submit your first payment, along with the completed form that Canada Revenue will provide you. You can make payments in person or by mail or online. Note that Canada Revenue charges late payment fees and penalties if you do not make your payments on time.

Prepare a T4 Slip

At the end of February of each year, prepare a T4, a summary of pay and source remittance, and provide it to both Canada Revenue Agency and your nanny for her income tax return. You will find a tool for preparing and submitting the T4 on the Canada Revenue website. If you have difficulty with preparing the T4, use the services of a professional who prepares T4s. An accounting firm may offer you this service at a reasonable rate if it also provides you with other services. Be sure your T4 reflects payments accurately. Canada Revenue Agency will use it to verify that your source remittance was correct. If your source remittance was less than it should have been, you will have to pay the balance due, along with a penalty for late payment.

References

• Nanny Questions: Hiring the Nanny
• Canada Revenue Agency: Payroll Deductions Online Calculator
• Service Canada:Social Insurance Number