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CAPAY: Canada RRSP How to Handle
Canadian law allows employees to send bonus dollars directly to a financial institution to defer federal and provincial tax.
The RRSP deduction only defers federal and provincial tax, so other required deductions must be taken (ie. CPP/QPP, EI, Investment Plan, Pension, garnishment, etc.)
This process is currently handled manually. Today, the Canadian government will notify an individual how much they can deposit to the RRSP. For example $1000. The employee can ask the employer to take part of their bonus and send it to the xyz financial institution. Let’s assume the bonus is $5000 total. The employer would deduction pension, investment plan, CPP/QPP, EI, etc, but NOT federal or provincial tax. Let’s say that leaves $2500. The employer would cut a $1000 check to the xyz financial institution and $1500 to the employee.