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National Payroll Institute Payroll Fundamentals 1Exam Sample Questions (Q16-Q21):
NEW QUESTION # 16
An employee in Ontario was paid a $25,000.00 retiring allowance. The eligible portion was $15,000.00 and was transferred to the employee's Registered Retirement Savings Plan (RRSP) by the employer. Calculate the income tax on the non-eligible portion.
Answer: A
Explanation:
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).
NEW QUESTION # 17
PF1 Exam - Net Pay Calculation (Template Worksheet)
Scenario
Diane Lemay works for Monarch Construction in Alberta and earns an annual salary of $49,500.00, paid on a semi-monthly basis.
The company provides its employees with group term life insurance coverage of two times annual salary and pays a monthly premium of $0.62 per $1,000.00 of coverage.
Diane uses her car to meet with clients on company business and receives a taxable car allowance of $50.00 per pay.
The company has a defined contribution pension plan to which Diane contributes 5% of her salary each pay.
Diane also contributes $20.00 to United Way and has $5.00 deducted for her social club membership each pay. She belongs to a union and pays 2% of her salary in union dues per pay period.
Diane's federal and provincial TD1 claim codes are 1. She will not reach the first Canada Pension Plan or Employment Insurance annual maximums this pay period.
Required: Calculate the employee's net pay, following the order of the steps in the net pay template.
EXHIBIT A - Net Pay Template (Fill in all blanks)
STATUTORY DEDUCTIONS
OTHER DEDUCTIONS
Given Data (Reference)
Step 1 - Calculate the employee's gross taxable earnings (GTE) for this pay.
[ _________________________________ ]
Step 2 - Calculate the pensionable earnings (PE).
[ _________________________________ ]
Step 3 - Calculate the insurable earnings (IE).
[ _________________________________ ]
Step 4 - Calculate the net taxable income (CRA) (NTI).
[ _________________________________ ]
Step 5 - Calculate the net taxable income (RQ) (NTI).
[ _________________________________ ]
Step 6 - Calculate Diane's Canada Pension Plan contribution.
[ _________________________________ ]
Step 7 - Calculate Diane's Employment Insurance premium.
[ _________________________________ ]
Step 8 - Calculate Diane's Quebec Parental Insurance Plan premium.
[ _________________________________ ]
Step 9 - Determine Diane's federal income tax.
[ _________________________________ ]
Step 10 - Determine Diane's provincial income tax.
[ _________________________________ ]
Step 11 - Calculate Diane's total deductions (statutory + other).
[ _________________________________ ]
Step 12 - Calculate Diane's net pay.
[ _________________________________ ]
Answer:
Explanation:
See the Explanation part for answer for each step.
Explanation:
Step 1 - Gross Taxable Earnings (GTE)
Salary per pay: 49,500 ÷ 24 = $2,062.50
Taxable car allowance: $50.00
Group term life taxable benefit:
Coverage = 2 × 49,500 = 99,000
Monthly premium = (99,000 ÷ 1,000) × 0.62 = 99 × 0.62 = 61.38
Semi-monthly benefit = 61.38 ÷ 2 = $30.69
GTE = $2,143.19
Step 2 - Pensionable Earnings (PE)
PE = $2,112.50 (2,062.50 + 50.00)
Step 3 - Insurable Earnings (IE)
IE = $2,112.50
Step 4 - Net Taxable Income (CRA) (NTI)
RPP = 5% × 2,062.50 = $103.13
Union dues = 2% × 2,062.50 = $41.25
NTI (CRA) = 2,143.19 # 103.13 # 41.25 = $1,998.81
Step 5 - Net Taxable Income (RQ)
$0.00
Step 6 - CPP (base CPP)
Period exemption = 3,500 ÷ 24 = $145.83
Contributory = 2,112.50 # 145.83 = $1,966.67
CPP = 1,966.67 × 5.95% = $117.02
CPP = $117.02
Step 6B - 2nd CPP (CPP2)
CPP2 = $0.00
Step 7 - EI premium
EI = 2,112.50 × 1.63% = $34.43
EI = $34.43
Step 8 - QPIP
$0.00
Step 9 - Federal income tax (CC1, semi-monthly)
$156.10
Step 10 - Alberta income tax (CC1, semi-monthly)
$73.20
Step 11 - Total deductions
Statutory: 117.02 + 34.43 + 156.10 + 73.20 = $380.75
Other: RPP 103.13 + Union 41.25 + United Way 20.00 + Social club 5.00 = $169.38 Total deductions = $550.13 Step 12 - Net pay Cash pay (salary + car allowance) = 2,062.50 + 50.00 = $2,112.50 Net pay = 2,112.50 # 550.13 = $1,562.37
NEW QUESTION # 18
Michael is an employee in Alberta who is paid bi-weekly and earns $1,600.00 per pay period. He has a taxable meal allowance of $30.00 per pay period. His federal and provincial TD1s on file show a claim code
2. Michael already reached the annual maximum first and second Canada Pension Plan (CPP) contributions before this pay. Calculate his total federal and provincial income taxes.
Answer:
Explanation:
(total federal + Alberta tax): $173.48
Explanation:
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.
NEW QUESTION # 19
Jasmine works for a Saskatchewan employer and earns $500.00 weekly. Calculate her Employment Insurance (EI) premium.
Answer:
Explanation:
$8.15 (employee EI premium for the week)
Explanation:
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.
NEW QUESTION # 20
An employee who lives in Ontario and reports to work at a permanent establishment of the employer in Quebec will have income tax deducted based on which province?
Answer: D
Explanation:
For payroll deductions, the key concept is the employee's province of employment (POE)-not where they live. The CRA states that the POE is determined primarily by the employer's establishment where the employee "reports for work." If an employee reports for work at an employer's establishment located in Quebec, then the POE is Quebec, even if the employee's province of residence is Ontario.
This matters because Quebec has distinct payroll requirements. The CRA notes that when the POE is Quebec, employers must apply Quebec-based payroll rules, including deducting Quebec Pension Plan (QPP) contributions instead of CPP, and deducting Quebec parental insurance plan (QPIP) premiums, along with Quebec provincial income tax withholding.
In practice, payroll must set up the employee using Quebec as the POE and ensure stakeholders (HR, finance, the employee) understand why deductions may differ from Ontario residents working in Ontario. Any over
/under-withholding due to POE vs. residence is typically reconciled when the employee files their personal tax return.
NEW QUESTION # 21
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