Income Tax calculations or discrepancies with the CRA in Canadian Payroll for Microsoft Dynamics GP

What you are seeing is actually normal in Microsoft Dynamics GP. The tax calculations in Canadian Payroll are very complex and take quite a few factors into account. Microsoft Dynamics GP uses a method called Cumulative Averaging that takes into account prior pay periods, the date used, a projected income and how many pay periods have occurred when finding tax amounts.

For instance, the existence of prior pay runs for that employee will affect the amount of Federal Tax that is withheld in Microsoft Dynamics GP. So you will find different tax amounts calculating if you compare a payrun batch for today, versus 6 months ago for the same employee. Tax calculations in GP do use ‘dates’ and will vary depending on the dates of the first payrun for that employee. So that is why an existing employee would calculate differently than a new hire with the same pay. You could really only compare taxes for employees that started at the same time and have the same YTD balances, dates, benefits/deductions, etc. or else you can expect differences. You will even see the taxes for a new hire change for each payrun as you go later and later into the year.

The CRA actually defines a ‘range’ of taxes and not a single number as the tax due. The reason they define a range is because they have more than one method to calculate taxes that is accepted. They use a simpler method that is the same for each period in their calculator, and Microsoft Dynamics GP uses a more complex method that takes past history into account. We have verified with the CRA that the numbers calculated by Microsoft Dynamics GP do comply within their acceptable range. There is a pdf published at the site below to explain Computer Tax Calculations. At the bottom of the site below, click on the link under Effective January 1, 2019 to find the pdf. The method Microsoft Dynamics GP uses is similar to Option 2 - Tax Formula based on cumulative averaging in Chapter 6.

https://www.canada.ca/en/revenue-agency/services/forms-publications/payroll/t4127-payroll-deductions-formulas/t4127-jan/

  

Note: For a new hire with no history, you must use the date of January 1 in order to match the CRA calculations. For example, in the first payrun for a new employee, the tax calculation will vary if you enter it dated January 1 versus a date later in the year, as pay periods that have occurred are also taken into account.