PF1 Payroll Fundamentals 1Exam Questions and Answers

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).

A SIN that begins with “9” (often called a 900-series SIN) is issued to temporary workers—people who are neither Canadian citizens nor permanent residents—and who are authorized to work in Canada. Service Canada’s employer guidance explicitly states that SINs beginning with “9” are issued to temporary workers who are neither Canadian citizens nor permanent residents, and these SINs are valid only until the expiry date shown on the immigration document that authorizes the person to work in Canada.

Service Canada also advises employers to confirm that employees with a SIN starting with “9” remain authorized to work and that their immigration document has not expired.

So, options A–C are incorrect because a 900-series SIN is not for permanent residents (“landed immigrants”), not for Canadians whose SIN “expires,” and not based on working outside Canada. It specifically signals temporary status tied to work authorization in Canada.

Net pay (often called “take-home pay”) is what the employee actually receives after all withholdings and other deductions are taken from their earnings. In Canadian payroll practice, the starting point is gross earnings (regular wages plus any taxable amounts that must be included in income). From gross earnings, payroll subtracts total deductions, which include statutory deductions (such as CPP/QPP, EI, and income tax) and any authorized non-statutory deductions (for example, union dues, benefits premiums, pension contributions, or garnishments where applicable). This is why the most accurate generic formula is gross earnings − total deductions. CRA payroll guidance reflects this structure by requiring employers to calculate gross pay, determine the correct statutory deductions, and then arrive at the amount paid to the employee after those deductions are withheld and remitted.

Options C and D are incomplete or incorrect because “total tax” is only one part of deductions, and “net taxable income” is not a payroll calculation base in the way the question frames it. Option A is also incorrect because “pensionable earnings” is only relevant to CPP/QPP calculations, not the overall net pay formula.

A hiring authorization package/checklist typically ensures the organization collects the documents needed to onboard the employee and set them up correctly in payroll and HR systems. This often includes items like an offer letter, signed policies, banking details for direct deposit, emergency contacts, and required HR/legal acknowledgements. A confidentiality agreement is a common onboarding document because it protects the employer’s confidential information and can be required regardless of payroll deductions.

The other options are not good examples of “required information” for all new hires. Employees do not give “consent” for statutory deductions—deductions like CPP, EI, and income tax withholding are required by law and employers must withhold them when applicable. A “clearance certificate” is not a standard universal onboarding requirement for payroll in Canada. A T1213 is only completed in special situations where an employee requests CRA authorization to reduce tax withheld at source; it is not something most new hires must provide.

An ROE is required when an employee experiences an interruption of earnings, such as 7 consecutive calendar days with no work and no insurable earnings (the “7-day rule”), or when earnings fall below 60% of regular weekly earnings for specific reasons (the “60% rule”). That means a 6-week unpaid leave (A) typically triggers an interruption of earnings, and a drop to 40% of normal earnings (B) meets the “below 60%” threshold (when due to the listed leave reasons). A layoff with no recall (D) also triggers an interruption of earnings under the 7-day rule.

However, Service Canada lists a special situation for a change in ownership: the former employer does not have to issue ROEs if (1) there is no actual break in the employee receiving earnings, and (2) payroll records are available to the new owner and the new owner agrees to issue a single ROE covering both periods if needed. That is exactly option C, so no ROE is required in that scenario.

In Saskatchewan (outside Quebec), EI premiums are deducted at the 2026 employee EI premium rate of $1.63 per $100 of insurable earnings (1.63%).

CRA guidance confirms that wages in lieu of termination notice are subject to EI premiums, and to determine statutory deductions you include the wages in lieu with the regular income (if any) for the pay period.

Step 1: Determine total insurable earnings in the final pay (assuming both amounts are insurable and the annual maximum won’t be exceeded):

$12,523.00 + $1,080.00 = $13,603.00.

Step 2: Calculate EI premium:

$13,603.00 × 1.63% = $13,603.00 × 0.0163 = $221.7289, which rounds to $221.73.

So, the EI premium to deduct from Feraz’s pay for this combined payment is $221.73.

Because Elodie is subject to QPP, her pensionable earnings for the pay period include both salary and commissions (both are pensionable employment earnings, assuming no exemptions apply). First, determine total pensionable earnings for the bi-weekly pay:

$1,000.00 + $4,300.00 = $5,300.00.

For 2026, Revenu Québec shows the QPP basic exemption is $3,500 annually and the (employee) QPP contribution rate on earnings up to the maximum pensionable earnings is 6.30%.

Payroll applies the exemption per pay period. For bi-weekly pay (26 pay periods):

$3,500 ÷ 26 = $134.62 (rounded to cents).

Pensionable earnings subject to QPP this pay:

$5,300.00 − $134.62 = $5,165.38.

QPP contribution:

$5,165.38 × 6.30% = $5,165.38 × 0.063 = $325.41894, which rounds to $325.42.

For employees whose province of employment is outside Quebec (including Saskatchewan), EI premiums are calculated by multiplying the employee’s insurable earnings by the employee EI premium rate for the year, up to the annual maximum insurable earnings. For 2026, the employee EI premium rate outside Quebec is $1.63 per $100 of insurable earnings (which is 1.63%).

Jasmine earns $500.00 weekly and (based on the question) we assume all earnings are insurable and she has not reached the annual maximum. Her EI premium is:

$500.00 × 1.63% = $500.00 × 0.0163 = $8.15.

This amount is deducted from the employee’s pay and later remitted to the CRA as part of the employer’s regular payroll remittance. The maximum insurable earnings for 2026 is $68,900, but at $500 per week she would only hit the maximum later in the year (if at all), so the weekly premium calculation above applies.

A defined benefit (DB) pension plan promises a future pension benefit based on a formula (for example, service and earnings). Because the benefit is defined, the plan must ensure it is adequately funded to meet future liabilities. That requires actuarial valuations—professional studies that forecast future obligations and determine required contributions. Regulators describe DB plan funding as being based on actuarial calculations and require administrators to file actuarial valuation reports to establish funding and contribution requirements.

A defined contribution (DC) plan does not promise a specific future pension amount; contributions are defined, and the retirement outcome depends on investment performance—so it does not require the same ongoing actuarial funding valuations for promised liabilities. An RRSP is an individual savings plan, not an employer DB plan requiring actuarial funding reports.

Therefore, the correct answer is Defined benefit pension plan (option A).

Taxable gross for the period = $1,600.00 + $30.00 = $1,630.00 (a taxable allowance is included in income for tax withholding).

Using CRA T4032-AB (Biweekly, 26 pay periods) with claim code 2:

Federal tax at pay $1,630 falls in the $1,619–$1,635 range → CC2 = $107.35.

Alberta provincial tax at pay $1,630 falls in the $1,628–$1,644 range → CC2 = $46.55.

Subtotal tax from the tables = $107.35 + $46.55 = $153.90.

CRA notes these tax tables build in the tax credits for CPP/EI, so when CPP is not deducted (because annual max already reached), you must increase tax withholding accordingly.

CPP that would have been deducted this pay (using CRA rates/YBE):

Pensionable = $1,630 − ($3,500/26 = $134.62) = $1,495.38; CPP (4.95% + 1.00% = 5.95%) = $88.98.

Add back missing credits: Federal 14% × 88.98 = $12.46; Alberta 8% × 88.98 = $7.12 → total $19.58.

Final total tax = $153.90 + $19.58 = $173.48.

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.

The CRA defines a death benefit as the gross amount of any payment made on or after the death of an employee to recognize the employee’s service in an office or employment. It can be paid to a surviving spouse/common-law partner, heir, or the estate.

This is different from amounts the employee already earned before death (for example, regular wages up to the date of death, or vacation pay that was accrued/earned). CRA guidance treats wages and employment income earned up to and including the date of death as amounts to be reported on a T4 slip, not as a death benefit.

It’s also different from a life insurance payout from an insurer (which is not an employer-paid “death benefit” for payroll reporting purposes). The payroll impact is that a qualifying death benefit is generally reported as a special payment (often on a T4A), following CRA rules for deductions and reporting of death benefits.

Service Canada’s ROE Guide is clear that vacation pay paid because of separation (termination/layoff) must be reported in Block 17A – Vacation pay.

But it doesn’t stop there. Vacation pay is generally insurable earnings, so when you enter insurable earnings in Block 17A, you must also add those amounts into Block 15B (Total insurable earnings) and into Block 15C, Pay Period 1 (P.P. 1) as applicable. The ROE Guide explicitly states: when you enter insurable earnings in Blocks 17A/17B/17C, you must also add them to the totals in Blocks 15B and 15C (P.P. 1 field)—and it gives the example that vacation pay paid on separation must be added to 15B and 15C because it is insurable.

Therefore, vacation pay on termination is recorded in Blocks 15B, 15C P.P. 1, and 17A (option C).

This is a benefit because the employer is providing access to an automobile (leased by the employer) that the employee can use for personal driving as well as business. The CRA explains that when an employer-owned or employer-leased automobile is made available for personal use, the employee receives a taxable automobile benefit, generally made up of a standby charge (availability of the vehicle) and potentially an operating expense benefit (if the employer pays operating costs and the employee has personal kilometres).

It is not an allowance (which is typically a cash amount given to the employee), and it is not an expense reimbursement (repayment of employee-incurred business expenses). It is also not an earning (pay for work performed). Payroll’s role is to track availability days/months, business vs personal kilometres, any employee reimbursements, apply the CRA calculation methods, and report the taxable benefit on the employee’s information slip with the correct taxable benefit 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 income tax purposes, net taxable income starts with the employee’s gross taxable income and then subtracts only those deductions that are deductible for income tax and can be recognized at source. CRA payroll guidance shows this approach by subtracting items such as RPP contributions and union dues when determining net taxable income for calculating income tax deductions.

Gross taxable income (weekly): $750.00.

RPP contributions are deductible (the amounts reported from box 20 of the T4 are generally deductible).

Regular union dues are deductible; however, the CRA states that deductible annual union/professional dues do not include special assessments or charges for anything other than ordinary operating costs. A levy specifically for constructing a new union hall is a special assessment, so it is not deductible as union dues.

So the deductions that reduce federal taxable income here are: $18.00 (union dues) + $20.00 (RPP) = $38.00.

Net federal taxable income = $750.00 − $38.00 = $712.00.

A retiring allowance is treated as a lump-sum payment for payroll withholding purposes. When part of a retiring allowance is transferred directly to an RRSP/RPP, CRA guidance indicates you do not withhold income tax on the transferred amount (up to the employee’s available limit), because it is not paid to the employee in cash.

Step 1: Determine the portion paid directly to the employee (non-eligible portion):

$25,000 − $15,000 transferred to RRSP = $10,000 paid/remaining.

Step 2: Apply CRA lump-sum withholding rates (outside Quebec):

For total lump-sum payments $5,001 to $15,000, the withholding rate is 20%.

Step 3: Calculate tax to withhold on $10,000:

$10,000 × 20% = $2,000.00.

So the correct option is B ($2,000.00).

An expense reimbursement is paid to repay an employee for actual business expenses the employee incurred while performing their job (for example, meals while travelling on business, supplies purchased for work, etc.). CRA’s taxable benefits guidance distinguishes reimbursements from allowances: an allowance is usually a predetermined amount paid without the employee having to support the expense with receipts, while a reimbursement is tied to actual costs.

That distinction matters because reimbursements are generally not compensation for work performed (so they are not “earnings”), and they are not “benefits” in the sense of a good or service provided by the employer (though CRA notes that benefits can include reimbursements of personal expenses—so payroll must still ensure the reimbursement is for business use and properly supported).

Option A correctly describes reimbursements. Option B is typically an allowance (for example, a vehicle allowance for using personal property). Option C describes earnings (wages/salary). Option D describes benefits (value of something provided or paid for on the employee’s behalf).