Lesson 2: Personal Taxes - Deductions

   Constructing Knowledge

Gross pay is deducted in several ways. A deduction is an amount of money subtracted from gross pay. Income tax (IT), Canada Pension Plan contributions (CPP), and Employment Insurance (EI) are deductions required by law.

Other deductions made such as union dues, extended health benefits or voluntary contributions to savings plans like pensions or RRSP's can also be made at the request of individual employees.

The pay that is agreed upon in a contract between employer and employee is the employee's gross pay, not the take home pay. To help the employee pay the necessary deductions, they are taken from the paycheque before the employee receives it, and the amount of each deduction is sent to the appropriate place on behalf of the employee. The amount of money that the employee receives on a paycheque is called net pay.

Net Pay
the amount of money remaining to be paid to an employee after all deductions are taken off the gross pay

   Points to Ponder

People who own their own business, or who are self-employed, must remember to subtract the deductions from all paycheques and send them to the government or other appropriate agencies. If they do not do this, they will be required to pay the deductions all at once when year-end taxes are filed. This can be very costly.


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