How to Set Up and Manage Treaty Status (Section 87) Tax Exemptions – Employment Hero Canada

Available for the following plans: Complete, Unlimited
Available for the following user access levels: Admin

This guide shows you how to easily set up an employee’s Section 87 tax exemption right in their employee profile.

Once enabled, Employment Hero automatically calculates and applies the reduced income tax and CPP withholding in each pay run, saving you time on manual payroll overrides while keeping everything fully compliant.

This article explains how to:

Getting started

Important note on eligibility

Employment Hero won't verify whether an employee qualifies for the Section 87 tax exemption—determining eligibility and collecting any necessary supporting documents (like paper TD1-IN forms) rests fully with the employer. Because there isn't a digital TD1-IN form built into the platform just yet, you'll need to keep those paper or external records on file and manually enter the exemption details into Employment Hero yourself.

Set up an employee's Treaty Status tax exemption

Follow these steps to configure the Treaty Status for an eligible Canadian employee:

Go to the employee's profile (People > People list > Select employee).
Find the Pay & Compensation section, click the View More dropdown, then select Taxes, credits & exemptions.
Scroll down to the Taxes & Exemptions section and click the pencil icon to edit it.
Switch on the Treaty Status (Section 87) toggle.
Enter the percentage of gross pay exempt from income tax in the Income Tax Exemption % field.

- Whole numbers only: Enter a value between 1 and 100 (decimals like 50.5% are not supported).

- No zero entries: If no exemption applies, leave the Treaty Status toggle switched off rather than entering 0%.
Review the CPP Exemption setting: Enabling Treaty Status automatically turns on the CPP exemption at the same percentage as income tax.

If an exception applies—such as when a CPT124 election has been filed with the CRA to require full CPP withholding regardless of treaty status—you can manually adjust or turn off the CPP exemption toggle for that specific employee. (Note: As there is currently no company-wide setting for this, it must be managed per employee profile).

Important

EI is never exempted by this feature and will always be calculated in full. Per CRA guidelines, this is a fixed regulatory requirement and cannot be configured or overridden.
Click Save. Your update will automatically sync to future pay runs; no extra manual steps required!

Understand pay run reflections and T4 reporting

Once saved, exemption settings affect payroll and reporting as follows:

Employee Tag: If an employee has Treaty Status turned on, an S87 tag will show up next to their name in the pay run list.
Viewing Exempt Earnings: You will see an "S87 exempt earnings" column on the employee's detail page if they have tax-exempt pay. You cannot edit these numbers directly in the pay run—to change exemption percentages, update the employee's main profile.
When Changes Take Effect: Updates apply to the next uncalculated pay run. If a pay run is already calculated, simply recalculate it to apply the new changes. You cannot change past finalized pay runs; any fixes must be made in a future pay run.
Year-End T4 Tax Forms: Tax-exempt earnings automatically add up throughout the year and report to Code 71 / Box 28 on the employee's T4.

Manage CPP exemptions and special considerations

Key rules and limitations to keep in mind regarding statutory deductions:

CPP Exceptions (CPT124 Election): If your organization has filed a CPT124 election with the CRA requiring CPP to be withheld on all income regardless of treaty status, manually turn off the CPP exempt toggle for the employee. There is currently no company-wide default for this setting.
Employment Insurance (EI): EI is never exempted under Section 87 features and will always be calculated in full, adhering to CRA regulations.
Employee Access: This setting is restricted to payroll admins and owners. Employees cannot view or edit Treaty Status options on their self-service profile.

Maintain

Updating or removing Treaty Status settings

To update an employee's exemption percentage or disable Treaty Status, return to the employee's payroll profile under Taxes and Exemptions. Modify the percentage or turn off the Treaty Status toggle and save. Changes will automatically apply to any subsequent uncalculated pay runs.

Go to the employee's payroll profile (People > People list > select employee).
Find the Pay & Compensation section, click view more dropdown, then select Taxes, credits & exemptions.
Scroll down to the Taxes & Exemptions section and click the pencil icon to edit it.
Switch off the Treaty Status (Section 87) toggle.

Frequently asked questions (FAQs)

I changed the exempt % mid-pay period — what happens to this period's pay?
The change takes effect from the next uncalculated pay run. If the pay run has already been calculated, you must recalculate it to pick up the change. Finalized pay runs are locked and cannot be changed retroactively.

Why didn't CPP change when I only meant to change income tax?
CPP defaults to tracking the same exemption percentage as income tax unless you have separately turned the CPP exempt toggle off for that employee.

Why is EI still being deducted?
Employment Insurance (EI) is never exempt under this feature. This is expected behaviour and adheres to CRA rules.

Does this affect the T4?
Yes. Exempt earnings flow through automatically to Code 71 / Box 28 on the T4 at year-end.

Can my employee see or set this themselves?
No. Self-service is not available for this feature; only payroll admins and owners can view or update treaty status settings.

How do I know if my employee is eligible?
Employment Hero does not determine or verify Section 87 eligibility. The employer is responsible for determining eligibility and maintaining supporting documentation (such as paper TD1-IN forms).

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