Written by: Pam Hammett, Bookkeeper and Payroll Specialist
As responsible business owners, you have an obligation to remit your business taxes, whether it be income taxes, HST, or withholdings of employee Source Deductions to Canada Revenue Agency (CRA). This article will cover not only the importance of correctly deducting Payroll Source Deductions; but of remitting these withholdings by the required deadlines.
With payroll, all monies deducted on behalf of the CRA are considered to be held “in trust” for the Receiver General. Employers who remit withholdings or deductions late, withhold the statutory deductions but do not remit them, or fail to deduct the required deductions will be subject to penalties, which may increase on subsequent occurrences, plus interest charges.
These penalties can be quite substantial. The CRA’s Employers’ Guide to Payroll Deductions and Remittances breaks down, in detail a complete list of penalties, interest and possible consequences which will occur if Payroll Source deduction and withholdings are not prepared correctly and remitted on time.
In summary, penalties may include:
- A failure to deduct can lead to a penalty assessed up to 10% of the amount of CPP, EI and income tax not deducted
- A failure to remit amounts deducted or being late with a remittance the penalties are currently:
- 3% if the amount is one to three days late
- 5% if it is four or five days late
- 7% if it is six or seven days late and
- 10% if it is more than seven days late, or if no amount is remitted.
Note: These penalties are quoted from the CRA website as at January 2, 2018.
In addition to these penalties, the CRA may also charge you interest on the amounts due from the date the payment was due. Prescribed interest rates are set by the CRA and can be found by clicking here.
Further, if you are assessed and penalized by the CRA more than once in a calendar year, the CRA will apply higher penalties to the second or later failures to remit. Therefore, it’s imperative that you calculate deductions accurately, actually deduct and collect from your employee(s) pays and remit to the CRA on time.
In the worst-case scenario, should you not comply with the CRA in terms of payroll deductions, remitting and reporting requirements, the CRA can and may prosecute you resulting in fines up to $25,000 and/or imprisonment up to 12 months.
As you can see, failure to comply with the CRA Payroll Deduction and Remittance requirements can result in penalties and interest which add up exponentially and possible legal prosecution.
Your Chartered Professional Accountant can help with accurately calculating and deducting payroll deductions helping you stay compliant with the CRA.
Bookkeeper and Payroll Specialist
Pamela Hammett has been a member of the Cody & James team since June 2016 and has over 20 years of accounting, bookkeeping and administration experience. Pam is actively working towards a certification as a Payroll Compliance Practitioner. Once certified, Pam will become Cody & James CPAs’ in-house Certified Payroll Specialist servicing the payroll needs of our clients.