National Payroll Institute PF1 - Payroll Fundamentals 1Exam

The CRA’s prescribed interest rates are established for specific periods labelled by calendar quarter (for example, “first calendar quarter 2026”), and CRA publishes the rate schedule by quarter.

This prescribed rate is used in multiple tax contexts, including calculating taxable benefits on certain interest-free or low-interest employee/shareholder loans, and it also relates to interest charged/paid by the CRA on overdue amounts and overpayments (with different rates for different situations).

Because CRA’s publication is organized and effective by quarter (e.g., Jan 1–Mar 31; Apr 1–Jun 30; Jul 1–Sep 30; Oct 1–Dec 31), the correct answer is each calendar quarter (option D), not monthly, semi-annual, or annual.

An expense reimbursement is a repayment to an employee for business costs they already paid personally (for example, meals, mileage, supplies), typically supported by receipts or an expense report. CRA’s guidance explains that a reimbursement is a payment made to repay amounts the employee spent while conducting the employer’s business, and that a reasonable reimbursement is generally not included in the employee’s income.

That’s why reimbursements are generally not part of “earnings” for payroll calculations—they are not compensation for work performed; they are repayment of a business expense. This differs from an allowance, which is usually a fixed amount paid without requiring receipts; allowances are often taxable unless a specific CRA exception applies.

So the correct term for “dollar amounts paid to cover job expenses incurred, but not considered earnings” is expense reimbursements (option D). Payroll best practice is to ensure reimbursements are properly documented and reasonable to support non-taxable treatment.

Salary continuance means the employee continues to receive regular pay (and often benefits) for a period after their job ends. In this arrangement, the payments are treated like regular employment income for payroll purposes, so the usual payroll deductions apply. A Government of Canada guidance page explains that when severance is paid as salary continuance, the employee pays income tax like regular employment income and that the usual deductions apply, including CPP (or QPP), EI premiums, and RPP contributions (where applicable).

This aligns with standard payroll obligations in CRA’s payroll remittance framework: employers deduct and remit CPP contributions, EI premiums, and income tax on employment income unless a specific exemption applies.

Therefore, the correct option is B (All deductions)—and in Quebec, that “all deductions” concept includes Quebec-specific programs (for example QPP/QPIP where applicable) based on the employee’s province of employment and insurability rules.

For payroll withholding, income tax is calculated on taxable income for the pay period, so only deductions that are income-tax deductible (or otherwise reduce taxable income at source) will reduce the employee’s taxable base for withholding. Employee contributions to an RRSP are generally deductible for the employee, which is why payroll-deducted RRSP contributions (such as contributions to a group RRSP taken off the paycheque) reduce the amount of income tax withheld when the payroll system is set up to treat them as deductible contributions. The CRA confirms that deductible RRSP contributions can be used to reduce your tax.

By contrast, paying provincial health care premiums (where applicable) and paying an employee share of group benefit plan premiums are not automatic “reduce taxable income at source” deductions in the same way for payroll withholding; they may be personal expenses and, depending on the plan/premium type, may only affect the employee’s personal tax situation through credits/deductions when filing, not the standard payroll withholding base. Therefore, the only correct choice is A.

In Block 6 (Pay period type), Service Canada instructs employers to enter the employee’s actual pay period type—one of the standard types such as weekly, biweekly, semi-monthly, monthly, or 13 pay periods a year.

Service Canada identifies a special rule only for employees “paid solely on commission or on salary plus irregularly paid commission”: in those cases, the employer must use a weekly pay period and average earnings using the weekly averaging formula.

Because this question specifies salary plus regularly paid commission (not irregularly paid commission), the “special situation” rule does not apply. Therefore, you enter the pay period type that matches the employer’s normal payroll cycle for that employee (for example, weekly, biweekly, semi-monthly, monthly, etc.).

Termination notice requirements come from the employment standards legislation that applies to the workplace, which is tied to the jurisdiction where the employee works (province/territory), unless the workplace is federally regulated. The Government of Canada explicitly directs employers and employees to consult the employment standards for the province or territory of work if they are not in a federally regulated industry.

Within a given jurisdiction, the minimum notice (or pay in lieu) is typically based on the employee’s length of continuous employment/service. For example, under the Canada Labour Code (federally regulated workplaces), required notice increases with service (and can be replaced with wages in lieu), showing service length is a core driver of notice entitlements.

That’s why “where they live” is not the deciding factor for notice rules: the governing employment standards are based on the jurisdiction of employment (where the work is performed / the employment is regulated), and the employee’s length of service under that jurisdiction’s rules.

CRA requires separating a retiring allowance into an eligible and non-eligible portion. The eligible portion is the maximum that can be transferred to an RRSP/RPP under the special rules (without using regular RRSP room). The formula is: $2,000 for each year (or part-year) of service before 1996, plus an additional $1,500 for each year (or part-year) before 1989 in which the employee had no employer pension/DPSP benefit vested at the time of payment (or previously paid).

Rosa worked from 1983 to 1995 (inclusive) for pre-1996 service: 13 years × $2,000 = $26,000.

For the extra pre-1989 amount: she joined the pension plan in 1986 and was fully vested when paid the retiring allowance in 2015, so 1986–1988 do not qualify for the extra $1,500. However, 1983–1985 were years before 1989 when she had no vested employer pension benefit, so 3 years × $1,500 = $4,500.

Eligible portion = $26,000 + $4,500 = $30,500.

Non-eligible portion = $62,500 − $30,500 = $32,000.

The CRA’s wage garnishment tool is commonly issued as a Requirement to Pay (RTP) (and related instruments such as ERTP/DTP), which directs a third party (often the employer) to redirect amounts that would otherwise be paid to the employee, and send them to the government instead. CRA guidance explains that when an employee owes money, the CRA can send the employer a requirement to pay notice, and the employer must remit the amounts as instructed (or the employer can become liable).

The legal authority for the CRA to issue a Requirement to Pay is found in the Income Tax Act, including section 224, which sets out the mechanism and consequences for non-compliance.

In payroll operations, this is a communication-and-compliance issue: payroll must correctly interpret the notice, apply the withholding/remittance as directed, and communicate impacts to internal stakeholders (HR/finance) and, where appropriate, the affected employee—while ensuring the remittance is made exactly as the CRA notice requires.

Option A is not correct. Service Canada’s ROE guidance for paper ROEs explains that if you need to complete Block 15C, you do that first, and then you still enter the total insurable earnings in Block 15B. It also reminds employers to include any insurable separation payments entered in Block 17 in both Block 15C (Pay Period 1) and Block 15B totals.

Option C is correct because retiring allowances (often treated as severance-type amounts) are not insurable, so even if they appear in Block 17C, they are not added to Blocks 15B/15C.

Option D is correct because vacation pay paid on separation is reported in Block 17A, and when it is insurable, it must be included in the insurable earnings totals in Block 15B (and Block 15C P.P.1 where applicable).