Late CRA Payroll Remittance: Penalties and How to Catch Up

Was my payroll remittance late, and when was it due?

A late or missed remittance costs a penalty of 3% to 10% of the late amount above $500, by days late, or 20% for a repeat knowing failure, plus interest that compounds daily.

A payroll remittance is late if its effective payment date is after the due date for your remitter type. For online or telephone banking the CRA uses the date the financial institution credits it with the payment; for an in-person bank payment, the date stamped on the remittance voucher; for mail, the date the CRA receives it. Allow processing time. The due date follows the date the pay was made (Income Tax Regulations, s. 108). When a due date falls on a Saturday, Sunday or CRA-recognized public holiday, the next business day applies (CRA: when to remit).

The CRA generally assigns the type from your average monthly withholding two calendar years earlier (a new small employer is judged on its monthly withholding instead), reviews every payroll account each November, and does not tie it to your pay frequency, so read it from your CRA account (CRA: types of remitters). Quarterly remitting also needs a perfect compliance record over the previous 12 months, with no late remittances or late-remitting penalties (Income Tax Regulations, s. 108(1.12)), so a late remittance can end it: confirm your next due date now. The CRA says a new small employer that loses eligibility becomes a regular remitter in the next calendar quarter, and an existing small employer is assigned a new type for the following calendar year (CRA: types of remitters). For opening the account and the full calendar, see Running payroll and remitting source deductions.

A single payment a few days late draws one penalty step on the part above $500, plus a few days of interest. The case is more than that if:

• you missed more than one remittance;
• the CRA has already sent a statement, notice or letter;
• deductions came out of pay but the money went to other costs. Amounts an employer deducts are deemed held in trust for the government, as a separate fund that is not part of the business's property (CRA: getting ready to make deductions);
• you are a director of the corporation; or
• you also have employees in Quebec.

Gather the CRA payroll statement or balance, payroll reports for each pay date, bank proof of each payment, and the T4 totals.

What is the penalty for a late or missed payroll remittance?

The CRA charges a share of the late amount that rises with the days late, and it can assess the penalty on each late remittance (CRA: when to remit; Income Tax Act, s. 227(9)).

A payment the CRA receives on time but not in the manner required is also penalized, at the 3% rate (Income Tax Act, s. 227(9)).

Two rules change the amount:

• The threshold. The ordinary penalty applies only to the amount by which the total due on that date (CPP, EI and income tax together) is above $500. That reduction is lost if the employer knowingly, or through gross negligence, delayed or paid less than required (Income Tax Act, s. 227(9.1)). The CRA lists a knowing or grossly negligent failure as penalized even under $500.
• Repeat knowing failures. The rate is 20% for the second or later assessed failure in a calendar year when the failures were made knowingly or under circumstances amounting to gross negligence (CRA: when to remit).

The CRA's payroll pages give no test for "knowingly" or "gross negligence". It is a question of fact, and it matters most where several periods were missed.

How does the CRA charge interest on late payroll remittances?

Interest runs on the unpaid amount from the day it was due until the day it is paid, and the CRA also charges interest on unpaid penalties. It sets the rate every calendar quarter and compounds the interest daily (CRA: when to remit; Income Tax Act, s. 227(9.2)).

The latest rate published for overdue income tax, CPP and EI amounts is 7% a year (CRA: interest rates); the figures table shows which quarter it covers. Each missed remittance accrues interest from its own due date. Interest on the unpaid amount stops when that amount is paid, and interest on a penalty stops only when the penalty is paid.

How do I find out what I owe and get current?

The CRA says an under-remittance must be remitted immediately, and that a penalty and interest may be charged for the late payment (CRA: correcting remitting errors). Getting current means comparing the CRA's record with your payroll records and paying what is missing.

1. List every pay date since your last on-time remittance, with the deductions made and your employer contributions for each.
2. Pull the CRA's side. The CRA reports payments and transactions on the monthly statement of account, the PD7A (CRA: account balance), and you can view statements and transactions after signing in to your CRA account (CRA: confirm your remittance). Electronic payments post in about 48 hours, so a payment from the last two days may not show yet. For earlier years, ask your tax services office or tax centre for a detailed statement.
3. Match the two. If a payment you made is missing or sits in the wrong period, call the Business Enquiries line at 1-800-959-5525 or use the "Respond to notices" form in the Payroll section of your CRA business account (CRA: account FAQ). If the figures still differ, reconcile the payroll ledger to the bank statements. Interest keeps running on every amount owed, so the amounts both records show as missing are the ones to remit now.
4. Remit what is missing to the same payroll account. Interest stops on the day each amount is paid.
5. Record the penalty and interest when the CRA assesses them: see recording CRA penalties and interest. If you cannot pay in full or your slips are late too, see the last section.

What if I never deducted CPP, EI and income tax from pay?

The CRA can assess the employer for the CPP and EI that should have been deducted, a failure-to-deduct penalty, and interest. For CPP and EI the employer is responsible for both the employee's and the employer's share, even if it cannot recover the employee's share from the employee. The employee's share can be recovered from later pay, but only up to the amount that should have been deducted from each payment, not once outstanding for more than 12 months, and not by adjusting income tax deductions (CRA: Employers' Guide).

The penalty is 10% of the CPP, EI and income tax not deducted, and 20% for a second or later failure in a calendar year made knowingly or under circumstances of gross negligence (CRA: getting ready to make deductions).

For income tax not deducted from a payee resident in Canada, the employer is charged the penalty and interest (interest stops at April 30 of the following year). The Act makes the employer liable for the tax itself only for payments to non-residents (Income Tax Act, s. 227(8.3) and (8.4)).

Deductions are required from the next pay date. If no payroll account was ever opened, that comes first (CRA: getting ready to make deductions): see running payroll.

If the pay was an owner's salary decided after the money left the corporation, see paying yourself a salary after the fact. For a corporation whose only employee is its owner, see owner-only payroll.

Can the CRA cancel the penalty or the interest?

Sometimes. The CRA has discretion to cancel or waive penalties and interest, but nothing requires it to grant a request (CRA: taxpayer relief, IC07-1R1). It lists three kinds of situation:

• Extraordinary circumstances, such as a flood or fire, a postal strike or other disruption in services, serious illness or accident, or serious emotional or mental distress such as a death in the immediate family.
• Actions of the CRA, such as processing delays that left you uninformed that an amount was owing, incorrect information from the CRA, or processing errors.
• Inability to pay or financial hardship. The CRA may consider cancelling interest when inability to pay is confirmed, but a penalty is not generally cancelled on that ground unless an extraordinary circumstance prevented compliance.

Ask on Form RC4288 or by letter. The CRA weighs your compliance history, whether you acted quickly to fix the delay, whether you took reasonable care, and whether you knowingly let a balance run and accrue interest. Interest relief covers interest that accrued in the 10 calendar years before the year of the request, and that limit rolls forward every January 1, so older periods drop out. A penalty request must be made within 10 years after the end of the calendar year of the period at issue, and the circular applies the same limit to CPP and EI penalties and interest. The circular says it is being updated, so check the CRA's current wording before relying on it. For the general process and other penalties, see CRA penalties, interest and relief.

Can I still use the Voluntary Disclosures Program for old missed remittances?

Possibly. The CRA lists unremitted employee source deductions, such as CPP or EI, as a case the program covers, but not if an audit or investigation about the information being disclosed has begun against the employer or a related taxpayer, whether by the CRA or another relevant authority (CRA: who is eligible; CRA: IC00-1R7, paragraph 17). The application must also include all relevant information for the periods involved, involve an error or omission that carries penalties or interest, be at least one year or one reporting period past its due date, and include payment of the estimated amount owing or a request for a payment arrangement that the CRA must approve. Disclose all known errors and omissions with the required records; where records no longer exist, the CRA says to make reasonable efforts to provide estimates (CRA: IC00-1R7, paragraphs 26 to 29). The program generally does not cover a request to cancel penalties or interest the CRA has already assessed: for those, see CRA penalties, interest and relief. For how the program works in general, see voluntary disclosure of unreported income.

The program relieves penalties and part of the interest. It does not cancel the deductions themselves. Normal relief is 100% of penalties and 75% of interest for an unprompted application, and 25% of interest with up to 100% of penalties for a prompted one (CRA: changes to the program). A general education letter can leave an application unprompted. A communication identifying a specific error or setting a correction deadline generally makes it prompted, and so can third-party information the CRA holds about you (CRA: review and decision).

The CRA also restricts the program for taxpayers it considers egregiously non-compliant (CRA: changes to the program), so a long run of knowing failures is a question to settle before applying.

Whether a CRA statement or reminder you received already counts as prompting you, or as the start of a review, is the CRA's decision, so treat it as an open question before you file. If a review or audit letter has arrived, see reviews, audits and voluntary disclosure and payroll audits and worker-status rulings.

Am I personally liable as a director for unremitted payroll deductions?

A director can be. The directors of a corporation at the time it was required to deduct, withhold or remit an amount are jointly and severally liable with the corporation, meaning each can be held responsible for the whole amount, plus any related interest and penalties (Income Tax Act, s. 227.1; CRA: IC89-2). For CPP and EI the same liability comes from Canada Pension Plan, s. 21.1 and Employment Insurance Act, s. 83, which apply the limits in s. 227.1(2) to (7). These rules apply to corporations; a sole proprietorship or partnership has no directors. The CRA adds that officers, employees and others who are not legally appointed as directors but perform a director's functions may also be liable (CRA: IC89-2).

The CRA cannot collect from a director until the corporation has failed to pay. Either a certificate for the debt registered in the Federal Court must have come back unsatisfied in whole or in part (the court's collection steps recovered nothing or only part), or the corporation must have entered liquidation, dissolution or bankruptcy and a claim for the debt must have been proved within six months of its start.

No recovery action can start more than two years after the director last ceased to be a director. Resigning does not remove liability for a failure that happened while the person was a director.

A director is not liable who exercised the care, diligence and skill that a reasonably prudent person would have used in comparable circumstances to prevent the failure. IC89-2 says the steps must be taken before the failure occurs, and that directors are obliged to be aware of what is happening in the corporation.

What is different when the employer is in Quebec?

A Quebec employer deals with two agencies. For employees working in Quebec, the employer deducts QPP instead of CPP, and QPIP premiums alongside EI. It sends the QPP, QPIP and Quebec income tax to Revenu Québec, and the EI and federal income tax to the CRA (CRA: Employers' Guide).

Revenu Québec counts a payment as received on the day it reaches one of its offices or is processed by a financial institution, and moves a weekend or holiday due date to the next business day (Revenu Québec: remittance schedules). Its director exceptions are on its liability for payment page.

Catching up with the CRA does not catch up with Revenu Québec. Check both accounts.

Example

These examples are illustrative, in Canadian dollars. Interest uses an assumed 7% a year.

Regular remitter, 10 days late

A corporation owes C$4,000, due on the 15th, and pays 10 days late. That is more than 7 days late, so the 10% step applies to the part above C$500: 10% of C$3,500 is C$350. Interest on the C$4,000 for 10 days is about C$8, and interest also runs on the penalty until it is paid.

Quarterly remitter, 2 days late

A sole proprietor who remits quarterly owes C$3,000, due July 15, and pays on July 17. The 3% step applies to the part above C$500: 3% of C$2,500 is C$75. Interest for 2 days is about C$1. A late remittance can also end quarterly remitting.

Owner-only corporation, 12 months unremitted

A corporation that remits monthly withholds C$2,000 a month from its owner's salary for CPP and income tax and remits nothing for 12 months. That is C$24,000 withheld and unpaid, plus the corporation's own CPP share (left out of the penalty figures below). If each miss is an ordinary failure, the 10% step applies to C$1,500 of each month: C$150 a month, C$1,800 over 12 months. If the CRA finds the failures knowing or grossly negligent, the C$500 reduction is lost and the 20% rate applies from the second assessed failure in a calendar year, so the penalty is higher. Interest runs on each month from its own due date. An owner who is a director may also be exposed if the CRA cannot collect from the corporation. Payment, and whether the failures still qualify for voluntary disclosure (no direct CRA contact does not settle that), are the first questions.

Different for you?

• You missed more than one remittance, the CRA has sent a statement or notice, or you are a director whose withheld amounts went to running costs: the amount owed depends on a payroll ledger that matches the CRA's account, and whether voluntary disclosure is still open and relief is worth asking for depend on what the CRA has already sent you and on your history. If payroll was not recorded properly, or the two records do not match, the ledger needs rebuilding before the amounts are firm: see bookkeeping help. Gather the CRA statement, payroll reports, bank proof of each payment and T4 totals.
• You cannot pay the balance at once: see CRA payment arrangements for business debt.
• The CRA sent a review or payroll audit letter: see reviews, audits and voluntary disclosure and payroll audits and worker-status rulings.
• Money already left the corporation and you now want to call it salary: see paying yourself a salary after the fact.
• Your T4 or T5 slips are late: see late T4 and T5 slips.
• Your accountant missed filings and stopped answering: see when an accountant misses filings.
• You need other CRA penalties or the general relief process: see CRA penalties, interest and relief.
• You are a US employer: see behind on payroll taxes.