How NWT/NU Payroll Tax Works in ZonePayroll

Overview

Northwest Territories (NWT) and Nunavut (NU) each charge a 2% payroll tax on employment income earned in the territory. The employee bears the tax; the employer withholds it from gross pay and remits it to the territorial Finance department, not to the Canada Revenue Agency (CRA).

The tax is separate from federal and territorial income tax. It does not appear on the T4, and it does not replace any CRA deduction (Income Tax, CPP/CPP2, or EI).

This article explains who is taxed, what counts as taxable remuneration, how ZonePayroll calculates it, how it displays on payslips, and how vendor remittances are managed.

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Key Concepts & Responsibility Breakdown

Both territories tax gross remuneration at 2%, and both rules depend on whether the employee normally works in the territory.

Feature	Northwest Territories (NWT)	Nunavut (NU)	Who Manages What
Tax Rate	2%	2%	ZonePayroll (Automated)
Payer / Withholder	Employee (withheld by employer)	Employee (withheld by employer)	ZonePayroll (Automated withholding)
Remittance Authority	GNWT Department of Finance	Government of Nunavut	Administrator (Vendor Link & Remittance)
"Normally Works" Test	More than 50% of time in the year	More than half of the days worked for the employer in the year	Administrator (Manual determination & monitoring)
Normally Works in Territory	2% on all employment income for the year, including portions earned outside	2% on all remuneration, inside and outside Nunavut	ZonePayroll (Applies when Payroll State is NWT/NU)
Normally Works Elsewhere	2% on income earned in the NWT	2% on remuneration earned in Nunavut, once more than $5,000 is earned there in the calendar year	Administrator (Manual setup via PCST or opt-out)
$5,000 Exemption	No tax if the employee normally works outside the territory and total remuneration paid by that employer in the year is $5,000 or less	No tax if the employee normally works outside Nunavut and earns $5,000 or less in Nunavut in the calendar year	Administrator (Manual tracking & Employee Opt-Out)
Appears on T4	No	No	System Standard (Excluded per legislation)
Appears on Payslip	Yes (itemized line deduction)	Yes (itemized line deduction)	ZonePayroll (Automated line item)

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How ZonePayroll Calculates the Tax Base

ZonePayroll calculates the 2% tax automatically based on Gross Taxable Remuneration across all eligible pay components in the pay run.

Calculation Base Rules

NWT/NU Payroll Tax Base = Gross Base Salary/Wages + Employer RRSP Contributions + Taxable Pay Components (PCST)

• Pay Component Sub Types (PCST) Included: Any earning or benefit with a Pay Component Sub Type (PCST) identified as taxable for territorial/payroll tax purposes is added directly to the gross taxable remuneration base.

• Salary Sacrifice (Pre-Tax) PCSTs: Salary sacrifice or pre-tax deduction PCSTs (such as employee pre-tax RRSP contributions, pre-tax union dues, or voluntary salary sacrifices) do not reduce the calculation base. The 2% tax is calculated on gross taxable remuneration prior to subtracting salary sacrifice PCSTs.

• Employer RRSP Contributions Included: Employer-paid RRSP contributions are treated as taxable remuneration for territorial tax purposes and are added directly to the gross taxable base.

• Included Remuneration Types: Salaries, wages, bonuses, gratuities, commissions, honoraria, vacation travel assistance (VTA), employee stock options, taxable allowances/benefits under the federal Income Tax Act, employer RRSP contributions, and retiring allowances or severance pay.

Operational Breakdown: System vs. Administrator

To avoid tax withholding errors, understand where automated system functionality ends and manual administrator oversight begins:

Out-of-State Temporary Work

If an employee's main payroll state is another province/territory but they work temporarily in NWT/NU, the tax will not calculate automatically.

• Workaround: Continue using—or manually create—a custom deduction Pay Component Sub Type (PCST) on the affected employee records until native automation for temporary out-of-territory work is introduced in a future release.

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Payroll Vendor Setup & Remittances

Because withheld tax is paid directly to the territorial government (and not the CRA), you must establish a vendor record linked to the correct tax authority subtype in ZonePayroll.

For step-by-step instructions on creating the vendor record, assigning the correct tax subtype, and linking it within your company configuration, refer to the main guide:

👉 Setting Up a New Payroll Vendor

Previewing Remittances

To preview tax amounts owed before generating vendor payments, navigate to:

Payroll Administration > Canada > Pay Detail : NT/NU Payroll Tax : Remittance

 

 

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Opt-Out Configuration

There are two optional ways to disable automatic calculation. If neither is used, the tax automatically calculates for qualifying employees.

Option 1: Opt Out for the Entire Company / Subsidiary

If operating multiple subsidiaries, repeat these steps for each applicable subsidiary record.

1. In the NetSuite global search, search for Payroll Config.

2. Open the desired subsidiary record.

3. Scroll to Form Options and select the CA tab.

4. Check Disable Automatic NT Payroll Tax, Disable Automatic NU Payroll Tax, or both.

5. Click Save.

 

Option 2: Opt Out for a Single Employee

1. Open the target Employee Record and navigate to Employee Tax Info.

2. Check Exempt from NT/NU Payroll Tax.

3. Click Save.

 

Important Action Required for Existing Custom Deductions:

If employees with an NWT or NU payroll state currently use a custom deduction for this tax, you must end the Pay Component Sub Type (PCST) for that custom deduction on those records prior to your first pay run after the bundle update. Otherwise, the tax will be deducted twice.

Alternatively, if you prefer to keep using your custom deduction, you must opt out of native calculation by checking Exempt from NT/NU Payroll Tax on the employee record or Disable Automatic NT/NU Payroll Tax at the subsidiary level.

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Pre-Payroll Checklist (Before First Pay Run After Oct 25)

Before running your first payroll following the update:

• [ ] Verify subsidiary-level settings under Payroll Config > Form Options > CA.

• [ ] Ensure your territorial vendor records are set up and linked per Setting Up a New Payroll Vendor.

• [ ] Review employee records with NWT or NU set as their payroll state.

• [ ] Apply the Exempt from NT/NU Payroll Tax opt-out for out-of-territory employees expected to earn $5,000 or less.

• [ ] End legacy custom PCST deductions for NWT/NU tax to prevent double-deduction.

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Worked Examples

Scenario	Calculation Breakout	Gross Taxable Base	Payroll Tax (2%)
Standard Pay Run: $3,000 salary + $500 bonus in one pay period	$3,000 + $500	$3,500	$70.00
Salary Sacrifice & RRSP Match: $4,000 base salary, $300 Salary Sacrifice (pre-tax) PCST, + $200 employer RRSP contribution	Gross salary ($4,000) is not reduced by the $300 Salary Sacrifice PCST. Employer RRSP match ($200) is added: $4,000 + $200	$4,200	$84.00
Mid-Year Payroll State Transfer: Employee earns $48,000 while payroll state is AB, then transfers payroll state to NWT and earns $52,000	Tax calculates only for pay runs after the transfer to NWT ($52,000). Prior AB pay runs are not automatically recalculated. (If entire $100,000 is legally taxable, admin must process a manual adjustment for prior period tax).	$52,000	$1,040.00 (automated)
Non-NU Resident ($5,000 or less): Payroll State set to NU, employee earns $4,200 in NU	Tax will calculate automatically unless an opt-out is applied. To exempt this employee, the administrator must check Exempt from NT/NU Payroll Tax.	$0 (with opt-out) / $4,200 (no opt-out)	$0.00 (with opt-out) / $84.00 (no opt-out)
Non-NU Resident working temporarily in NU (Over $5,000): Primary payroll state remains AB, employee earns $6,000 in NU	ZonePayroll will not automatically charge tax because the payroll state is AB (future enhancement). Administrator must manually apply a deduction PCST.	$6,000 (manual PCST)	$120.00 (manual PCST)

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Frequently Asked Questions (FAQs)

Q: Do Salary Sacrifice (pre-tax) PCSTs or pre-tax deductions reduce the 2% tax calculation?

A: No. The tax is calculated on gross taxable remuneration prior to applying any Salary Sacrifice (pre-tax) PCSTs or voluntary pre-tax deductions.

Q: How does ZonePayroll identify which earnings are included in the tax base?

A: Any pay component assigned a Pay Component Sub Type (PCST) configured as taxable for payroll tax purposes, along with employer RRSP contributions, is included in the gross taxable remuneration base.

Q: Are employer RRSP contributions subject to NWT/NU payroll tax?

A: Yes. Employer contributions to an RRSP are considered taxable remuneration for territorial payroll tax purposes and are added directly to the 2% calculation base.

Q: Will the employee see the 2% tax on their payslip?

A: Yes. The tax displays on the employee's payslip as an itemized line deduction, ensuring full visibility into how net pay was calculated.

Q: Does the 2% payroll tax appear on the employee's T4?

A: No. Neither territory requires it on the T4, as it is completely separate from territorial personal income tax.

Q: Is this tax remitted to the CRA?

A: No. It is remitted directly to the Department of Finance for NWT or the Government of Nunavut via your linked vendor record.

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Reference & Sources

• GNWT Department of Finance: Payroll tax for employees

• Government of Nunavut: Payroll tax guidelines

• National Payroll Institute: Payroll Compliance Legislation, Chapter 7 (Provincial and Territorial Legislation Outside Québec)