PF1 Payroll Fundamentals 1Exam Questions and Answers

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.

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.

“Net taxable income” for payroll withholding purposes is the amount of income on which income tax is calculated for the pay period. It generally starts with the employee’s gross taxable earnings for the period (regular wages plus any taxable benefits/allowances that must be included in income), then subtracts only those deductions that are deductible for tax at source (for example, certain registered pension plan contributions, union dues, etc., if applicable). A cash taxable benefit is treated like additional remuneration and is included in taxable income. (canada.ca)

Here, Anthony’s weekly taxable earnings are:

$750.00 wages + $25.00 cash taxable benefit = $775.00.

Being exempt from CPP contributions affects whether CPP is deducted, but CPP is not a “net taxable income” subtraction in this question (and in any case, no CPP is being deducted). The question also does not mention any other tax-deductible payroll deductions (like RPP contributions), so there is nothing to subtract from taxable earnings.

Therefore, Anthony’s net taxable income for the week is $775.00.

For CRA automobile benefit purposes (standby charge on an employer-owned automobile), the “cost” used is the capital cost, which includes more than just the sticker price. CRA guidance states the cost includes the trade-in amount (if applicable), additions, and GST/HST and PST as part of the cost base used in the standby charge calculation.

Option D is the best match because it includes vehicle options/accessories, sales taxes, and additions that add to depreciation value. Importantly, CRA also notes that certain specialized equipment added to meet the requirements of a disabled person or employment (examples include heavy-duty suspension and power winches) is not considered part of the automobile’s cost for standby charge purposes. This directly rules out options A and C, since they treat specialized equipment as part of capital cost. Option B is incorrect because CRA includes sales taxes (GST/HST and PST) in the cost base.

The CRA sets out that the “eligible” portion of a retiring allowance that may be transferred directly to an RRSP/RPP under special rules is based on years of service before 1996 (and potentially an additional amount for certain pre-1989 years if specific pension/DPSP conditions are met). The CRA explains the eligible part is $2,000 for each year (or part-year) of service before 1996, plus you may be able to transfer an additional $1,500 for each year (or part-year) of service before 1989 where no employer pension/DPSP benefit was vested (or previously paid) for those years.

This is why the correct basis in the answer choices is the employee’s years of service prior to 1996, not wages, age, or average earnings. Payroll needs this service history (including related employers where applicable) to correctly identify the eligible/non-eligible split and apply the right withholding and transfer reporting.

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.

Payroll deductions are typically applied in a priority order to ensure the employer meets mandatory legal obligations first and avoids creating liability. Standard Canadian payroll training materials commonly present five categories withheld in this order: (1) statutory deductions, (2) legal deductions, (3) union deductions, (4) company-compulsory deductions, and (5) voluntary deductions.

Statutory deductions (CPP/QPP, EI, income tax, and where applicable NWT/Nunavut payroll tax) have top priority because employers are legally required to deduct and remit them.

Legal deductions (such as CRA requirements to pay/garnishments) are next because they are enforced by law and can create employer liability if not followed.

Union deductions follow where required by a collective agreement.

Company-compulsory deductions (for example, required benefit premiums) come after those.

Voluntary deductions (charity, savings plans, etc.) are last and only taken if funds remain.

Therefore, option D is the correct order.

First calculate Ronda’s pensionable earnings for the week. Her gross pay is:

$12.50 × 40 = $500.00.

CPP is calculated on pensionable earnings after subtracting the basic exemption (the Year’s Basic Exemption, YBE), prorated to the pay period. The CRA confirms the YBE is $3,500 and the employee CPP contribution rate for 2026 is 5.95% for base CPP.

Weekly exemption = $3,500 ÷ 52 = $67.31 (rounded to cents).

Pensionable earnings subject to CPP this week = $500.00 − $67.31 = $432.69.

CPP contribution = $432.69 × 5.95% = $432.69 × 0.0595 = $25.745…, which rounds to $25.75.

This deduction continues each pay until the employee reaches the annual CPP maximum contribution for the year (at which point CPP stops for the remainder of the year).

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.

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

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.

The CRA defines a benefit as something the employee receives when the employer pays for or gives something that is personal in nature (a good or service), either directly to the employee or through a third party. CRA’s T4130 guide describes a benefit as a good or service you give (or arrange for) such as free use of employer property, and it is the value of that benefit that may need to be included in the employee’s income if taxable.

This matches the wording in the question: “dollar values attributed to something the employer has either provided…or paid for…on an employee’s behalf.” By contrast, earnings are pay for work performed (salary, wages, commissions). Allowances are fixed amounts paid to help cover anticipated expenses without receipts (often taxable unless an exception applies). Expense reimbursements repay actual business expenses (typically supported by receipts) and are generally not treated as earnings.

So the correct classification is Benefits.

The payment type most clearly not subject to all statutory deductions is directors’ fees. CRA guidance on directors’ fees shows they are treated as a special payment with distinct deduction rules, and (depending on the situation) they may not have CPP, EI, and income tax all apply in the same way as normal employment earnings.

By contrast, retroactive adjustments and performance bonuses are treated as taxable remuneration where CRA’s tools (like PDOC) calculate CPP contributions, EI premiums, and income tax on those payments (up to annual maximums).

“Vacation pay when no time was taken” is also treated as a non-periodic payment and is included in CRA payroll deduction formulas as a type of amount on which statutory deductions are calculated (again, subject to annual maximums for CPP/EI).

So, among the options listed, directors’ fees are the one that would not necessarily be subject to all statutory deductions in the standard way.

The Northern residents deductions (often referred to as the “prescribed zone” deduction on the personal tax return) are not limited to the three territories. While all places in Yukon, Nunavut, and the Northwest Territories are in a prescribed northern zone (Zone A), the rules also designate prescribed northern and intermediate zones in parts of several provinces (for example, parts of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and others).

The governing framework is in the Income Tax Regulations, which define prescribed zones using geographic descriptions (latitudes/longitudes) covering areas in multiple provinces, as well as the territories.

From a payroll/HR communications perspective, the key is that this deduction is generally claimed by the individual on their income tax return (it does not change the employer’s province-of-employment withholding rules). Employees who believe they qualify should verify their community’s zone status using CRA’s prescribed zone lists before claiming the deduction.

Service Canada’s ROE guidance states that an employer must issue an ROE each time an employee experiences an interruption of earnings and when Service Canada requests one. This makes option A true.

For paper ROEs, the ROE guide is explicit about deadlines: you must issue a paper ROE within 5 calendar days of (1) the first day of an interruption of earnings, or (2) the day the employer becomes aware that an interruption of earnings has occurred. This confirms option B.

An interruption of earnings generally occurs under the 7-day rule—when an employee has had or is anticipated to have 7 consecutive calendar days with no work and no insurable earnings from the employer. That’s why option C is also true: once the employer becomes aware the 7-day threshold is met (or will be met), the ROE requirement is triggered, and the paper ROE must be issued within the time limit above.

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).

Step 1 — Block 6

Bi-weekly

Step 2 — Block 8

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Step 3 — Block 10

September 19, 2007 → 19092007

Step 4 — Block 11

October 28, 2019 → 28102019

Step 5 — Block 12

October 28, 2019 → 28102019

Step 6 — Block 15A (Total insurable hours)

80.00 × 27 = 2160

Block 15A = 2160

Step 7 — Block 15B (Total insurable earnings)

$1,884.62 × 27 = $50,884.74

Block 15B = 50,884.74

Step 8 — Block 17A (Vacation pay)

$52,050.00 × 6% = $3,123.00

Block 17A = 3,123.00

Step 9 — Block 17C (Pay in lieu of notice)

Weekly earnings = $1,884.62 ÷ 2 = $942.31

Pay in lieu = $942.31 × 8 = $7,538.48

Block 17C (Pay in lieu of notice) = 7,538.48

Step 10 — Block 17C (Severance)

Severance = $942.31 × 10 = $9,423.10

Block 17C (Severance) = 9,423.10