PAYROLL FUNDAMENTALS 1 (PFP1) EXAM QUESTIONS WITH
VERIFIED SOLUTIONS - UPDATED VERSION 2026/2027
1. Q: What is the purpose of the federal TD1 form? ANSWER The TD1
form is used to determine the amount of federal tax to deduct from an
employee's pay based on their personal tax credits.
2. Q: When must a new employee complete a TD1 form? ANSWER
Within seven days of starting employment, or before the first pay is
issued.
3. Q: What happens if an employee does not complete a TD1? ANSWER
The employer must deduct taxes at the highest rate (no claim code) or
using only the basic personal amount, depending on provincial rules.
4. Q: What is a TD1X form used for? ANSWER It is used by commission
employees who want to have tax deducted based on an estimated
annual income averaging method rather than each pay period.
5. Q: Can an employer require an employee to provide their Social
Insurance Number (SIN)? ANSWER Yes, the employer must obtain the
employee's SIN within three days of the day the employee starts work.
6. Q: What should a payroll practitioner do if an employee provides a
SIN starting with "9"? ANSWER A SIN beginning with "9" is issued to
temporary residents; the employer must verify the expiry date and
ensure the employee has valid work authorization.
7. Q: How long must an employer keep TD1 forms on file? ANSWER TD1
forms must be retained for six years after the last tax year they applied
to.
8. Q: What is the difference between a TD1 and a TD1 provincial form?
ANSWER The federal TD1 determines federal tax credits; the
provincial/territorial TD1 determines provincial/territorial tax credits.
9. Q: If an employee has more than one employer, what should they
indicate on their TD1? ANSWER They should check the box indicating
,they have multiple employers and not claim the basic personal amount
again if already claimed with another employer.
10. Q: What is the purpose of the CPP/QPP election form (CPT30)?
ANSWER It allows employees aged 65–70 who are receiving CPP
benefits to elect to stop contributing to CPP, or to revoke a previous
election and resume contributions.
11. Q: Can an employer use a TD1 form from a previous year? ANSWER
No, employees should complete a new TD1 each year if there are
changes to their tax credits, but if no new form is submitted, the
previous year's claim code may still be used until a new one is
provided.
12. Q: What is the maximum number of claim codes on a federal TD1?
ANSWER There is no fixed maximum; claim codes correspond to
specific dollar amounts of personal tax credits. Code 0 means no
credits claimed.
13. Q: What is the purpose of the TD1-IN form? ANSWER It is used by
Indians (as defined under the Indian Act) to indicate that their income is
exempt from tax under section 87 of the Indian Act.
14. Q: What information must be collected for a new employee besides
the TD1 and SIN? ANSWER Date of birth, address, job title, pay rate, pay
frequency, bank account information for direct deposit (if applicable),
and any applicable union or group numbers.
15. Q: What is the purpose of the Personal Tax Credits Return (TD1)?
ANSWER To inform the employer of the employee's personal tax
credits so the correct amount of income tax can be deducted.
16. Q: If an employee has a dependent with a disability, which form
should be completed? ANSWER The TD1-Disability form or the relevant
provincial equivalent, to claim the disability tax credit transfer.
17. Q: What is the consequence of failing to obtain a SIN from an
employee? ANSWER The employer must still report the income but
should make reasonable efforts to obtain the SIN; continued failure may
result in penalties from CRA.
,18. Q: Can an employer start paying an employee before receiving their
SIN? ANSWER Yes, but the employer must make every effort to obtain
it within three days of the employee starting work.
19. Q: What is an LMIA and when is it relevant for payroll? ANSWER A
Labour Market Impact Assessment may be required for foreign
workers; it confirms the worker is authorized to work in Canada, which
affects SIN validity.
20. Q: What is the purpose of a void cheque or direct deposit form?
ANSWER To obtain accurate banking information for electronic funds
transfer (EFT) of net pay.
21. Q: If an employee changes their address, how soon must the
employer update payroll records? ANSWER The employer should
update records immediately to ensure accurate tax jurisdiction and
year-end mailing.
22. Q: What is the purpose of the ESDC (Employment and Social
Development Canada) in relation to new hires? ANSWER ESDC
oversees the SIN program and employment standards; employers
report new hires to provincial agencies for child support enforcement
in some jurisdictions.
23. Q: What is a new hire reporting requirement in some provinces?
ANSWER Employers must report new hires to a provincial registry
(e.g., Ontario's New Hire Reporting Program) within a specified
timeframe for child support purposes.
24. Q: What should be done if an employee's SIN is invalid? ANSWER
The employer should ask the employee to contact Service Canada to
resolve the issue and should not use an invalid or fake SIN for payroll
processing.
25. Q: What is the difference between an employee and a self-employed
contractor for tax purposes? ANSWER Employees have tax, CPP, and
EI deducted at source; self-employed contractors are responsible for
their own tax remittances and may not be subject to EI/CPP
withholding.
26. Q: What factors determine worker status (employee vs. contractor)?
ANSWER Control over work, ownership of tools, chance of profit/risk
of loss, and integration into the business.
, 27. Q: What form is used to request a ruling on worker status from
CRA? ANSWER Form CPT1, Request for a Ruling as to the Status of a
Worker under the Canada Pension Plan and Employment Insurance Act.
28. Q: If a worker is deemed a personal services business, who is
responsible for remitting source deductions? ANSWER The payer (the
entity paying the worker) is generally responsible for remitting CPP, EI,
and income tax.
29. Q: What is the purpose of the T4 slip? ANSWER To report
employment income, deductions, and taxable benefits to CRA and the
employee for the calendar year.
30. Q: When must a T4 be issued to an employee? ANSWER By the last
day of February following the calendar year to which it relates.
31. Q: What is the purpose of the T4A slip? ANSWER To report pension,
retirement, annuity, and other income such as self-employment
commissions and fees.
32. Q: What is the purpose of Register of Payroll Information (RPI)?
ANSWER There is no standard "RPI" in Canadian payroll; this may refer
to internal employer payroll registers which track all employee pay
data.
33. Q: What is the significance of the "first day worked" in payroll
records? ANSWER It determines the start date for benefit eligibility,
vacation accrual, seniority, and ROE requirements.
34. Q: What is a probationary period and how does it affect payroll?
ANSWER A probationary period is an initial employment term where
benefits or certain entitlements may not apply; pay must still comply
with minimum standards.
35. Q: What is the purpose of an employment contract in payroll?
ANSWER It establishes the terms of employment including pay rate,
hours, benefits, and entitlements which form the basis for payroll
calculations.
SECTION 2: REGULAR EARNINGS & EMPLOYMENT STANDARDS
(Questions 36–75)
VERIFIED SOLUTIONS - UPDATED VERSION 2026/2027
1. Q: What is the purpose of the federal TD1 form? ANSWER The TD1
form is used to determine the amount of federal tax to deduct from an
employee's pay based on their personal tax credits.
2. Q: When must a new employee complete a TD1 form? ANSWER
Within seven days of starting employment, or before the first pay is
issued.
3. Q: What happens if an employee does not complete a TD1? ANSWER
The employer must deduct taxes at the highest rate (no claim code) or
using only the basic personal amount, depending on provincial rules.
4. Q: What is a TD1X form used for? ANSWER It is used by commission
employees who want to have tax deducted based on an estimated
annual income averaging method rather than each pay period.
5. Q: Can an employer require an employee to provide their Social
Insurance Number (SIN)? ANSWER Yes, the employer must obtain the
employee's SIN within three days of the day the employee starts work.
6. Q: What should a payroll practitioner do if an employee provides a
SIN starting with "9"? ANSWER A SIN beginning with "9" is issued to
temporary residents; the employer must verify the expiry date and
ensure the employee has valid work authorization.
7. Q: How long must an employer keep TD1 forms on file? ANSWER TD1
forms must be retained for six years after the last tax year they applied
to.
8. Q: What is the difference between a TD1 and a TD1 provincial form?
ANSWER The federal TD1 determines federal tax credits; the
provincial/territorial TD1 determines provincial/territorial tax credits.
9. Q: If an employee has more than one employer, what should they
indicate on their TD1? ANSWER They should check the box indicating
,they have multiple employers and not claim the basic personal amount
again if already claimed with another employer.
10. Q: What is the purpose of the CPP/QPP election form (CPT30)?
ANSWER It allows employees aged 65–70 who are receiving CPP
benefits to elect to stop contributing to CPP, or to revoke a previous
election and resume contributions.
11. Q: Can an employer use a TD1 form from a previous year? ANSWER
No, employees should complete a new TD1 each year if there are
changes to their tax credits, but if no new form is submitted, the
previous year's claim code may still be used until a new one is
provided.
12. Q: What is the maximum number of claim codes on a federal TD1?
ANSWER There is no fixed maximum; claim codes correspond to
specific dollar amounts of personal tax credits. Code 0 means no
credits claimed.
13. Q: What is the purpose of the TD1-IN form? ANSWER It is used by
Indians (as defined under the Indian Act) to indicate that their income is
exempt from tax under section 87 of the Indian Act.
14. Q: What information must be collected for a new employee besides
the TD1 and SIN? ANSWER Date of birth, address, job title, pay rate, pay
frequency, bank account information for direct deposit (if applicable),
and any applicable union or group numbers.
15. Q: What is the purpose of the Personal Tax Credits Return (TD1)?
ANSWER To inform the employer of the employee's personal tax
credits so the correct amount of income tax can be deducted.
16. Q: If an employee has a dependent with a disability, which form
should be completed? ANSWER The TD1-Disability form or the relevant
provincial equivalent, to claim the disability tax credit transfer.
17. Q: What is the consequence of failing to obtain a SIN from an
employee? ANSWER The employer must still report the income but
should make reasonable efforts to obtain the SIN; continued failure may
result in penalties from CRA.
,18. Q: Can an employer start paying an employee before receiving their
SIN? ANSWER Yes, but the employer must make every effort to obtain
it within three days of the employee starting work.
19. Q: What is an LMIA and when is it relevant for payroll? ANSWER A
Labour Market Impact Assessment may be required for foreign
workers; it confirms the worker is authorized to work in Canada, which
affects SIN validity.
20. Q: What is the purpose of a void cheque or direct deposit form?
ANSWER To obtain accurate banking information for electronic funds
transfer (EFT) of net pay.
21. Q: If an employee changes their address, how soon must the
employer update payroll records? ANSWER The employer should
update records immediately to ensure accurate tax jurisdiction and
year-end mailing.
22. Q: What is the purpose of the ESDC (Employment and Social
Development Canada) in relation to new hires? ANSWER ESDC
oversees the SIN program and employment standards; employers
report new hires to provincial agencies for child support enforcement
in some jurisdictions.
23. Q: What is a new hire reporting requirement in some provinces?
ANSWER Employers must report new hires to a provincial registry
(e.g., Ontario's New Hire Reporting Program) within a specified
timeframe for child support purposes.
24. Q: What should be done if an employee's SIN is invalid? ANSWER
The employer should ask the employee to contact Service Canada to
resolve the issue and should not use an invalid or fake SIN for payroll
processing.
25. Q: What is the difference between an employee and a self-employed
contractor for tax purposes? ANSWER Employees have tax, CPP, and
EI deducted at source; self-employed contractors are responsible for
their own tax remittances and may not be subject to EI/CPP
withholding.
26. Q: What factors determine worker status (employee vs. contractor)?
ANSWER Control over work, ownership of tools, chance of profit/risk
of loss, and integration into the business.
, 27. Q: What form is used to request a ruling on worker status from
CRA? ANSWER Form CPT1, Request for a Ruling as to the Status of a
Worker under the Canada Pension Plan and Employment Insurance Act.
28. Q: If a worker is deemed a personal services business, who is
responsible for remitting source deductions? ANSWER The payer (the
entity paying the worker) is generally responsible for remitting CPP, EI,
and income tax.
29. Q: What is the purpose of the T4 slip? ANSWER To report
employment income, deductions, and taxable benefits to CRA and the
employee for the calendar year.
30. Q: When must a T4 be issued to an employee? ANSWER By the last
day of February following the calendar year to which it relates.
31. Q: What is the purpose of the T4A slip? ANSWER To report pension,
retirement, annuity, and other income such as self-employment
commissions and fees.
32. Q: What is the purpose of Register of Payroll Information (RPI)?
ANSWER There is no standard "RPI" in Canadian payroll; this may refer
to internal employer payroll registers which track all employee pay
data.
33. Q: What is the significance of the "first day worked" in payroll
records? ANSWER It determines the start date for benefit eligibility,
vacation accrual, seniority, and ROE requirements.
34. Q: What is a probationary period and how does it affect payroll?
ANSWER A probationary period is an initial employment term where
benefits or certain entitlements may not apply; pay must still comply
with minimum standards.
35. Q: What is the purpose of an employment contract in payroll?
ANSWER It establishes the terms of employment including pay rate,
hours, benefits, and entitlements which form the basis for payroll
calculations.
SECTION 2: REGULAR EARNINGS & EMPLOYMENT STANDARDS
(Questions 36–75)
