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TAX

Late Payroll Remittances

Prior to changes announced this past June, the penalty structure for employers who submitted their payroll remittances a few days late were quite onerous.

As an employer, you are responsible for deducting and remitting Canada Pension Plan (CPP), Employment Insurance (EI) premiums and income tax from amounts you pay to your employees along with your share of these withholdings to the Receiver General. In Quebec, employers must remit provincial deductions and contributions to the Quebec Pension Plan (QPP) to the Minister of Revenue of Quebec.

For the most part, employers voluntarily pay their payroll remittances on schedule. However, if they were just a few days late, the previous flat penalty rate of 10% was viewed to be overly punitive.

Penalties Now Graduated

As of June 2003, the Canada Customs and Revenue Agency (CCRA) administratively replaced the flat penalty rate with a system of graduated penalty rates for late remittances. In response to ongoing discussions with

employers and associations such as the Canadian Payroll Association, the CCRA revised the penalty structure to focus on good performance while deterring employers who chronically remit late.

The current penalties for remitting late are:

3% for remittances that are late 3 days or less
5% for remittances that are 4 or 5 days late
7% for remittances that are 6 or 7 days late, and
10% for remittances that are 8 or more days late.

Failure to Remit or Pay

However, the penalties for failing to deduct or withhold have not changed. An employer who fails to remit or pay as and when required may be subject to a penalty of 10%. A 20% penalty applies where the failure to remit is made knowingly or under circumstances amounting to gross negligence.

Director's Liability

If a for-profit or not-for-profit corporation fails to deduct, withhold, remit or pay amounts held in trust for the Receiver General (CPP, EI, income tax and GST/HST), the CCRA may also hold the directors of the company at the time of the failure personally liable to pay the amount due, including penalties and interest.

Payment Must be Received by the Due Date

A remittance is not considered to have been paid until such time as the Receiver General receives it. If you mail your remittances, be sure to post them long enough in advance to ensure the Receiver General receives them by their due date. If you make your remittances at a financial institution, they are considered received on the date that the funds are electronically transferred to the CCRA.

If you use an automated teller machine (ATM) to make your remittances, be sure to allow time for the financial institution to process the payment. While the financial institution debits your account as at the date of your transaction or the next day, the CCRA does not view an ATM receipt as proof of its having received the payment by the due date.

If you are concerned about the processing time, you can make your payment directly at a Tax Centre. Whether you make your payment at a financial institution, an ATM, or at a Tax Centre, the CCRA must receive it on the date that it is due.

If you are a regular remitter, generally you must remit your deductions on or before the 15th day of the month following the month that you made them. If the 15th is a Saturday, Sunday or a statutory holiday, your remittance is due on the next business day. For corporations that are eligible for quarterly remitting, payment must be received

on or before the 15th day of the month immediately following the end of each quarter.

Threshold 1 and 2 remitters (that is those employers who had an average monthly remittance two years ago equal to or more than $15,000 and less than $50,000 and those who had an average monthly remittance two years ago of $50,000 or more) have their own payment date schedules. Note that Threshold 2 remitters must make their remittances at a financial institution.

Monitor Payments Carefully

It is important to monitor the company's payroll remittances and GST/HST payments carefully to ensure the company and its directors are not liable for late penalties and interest. Your chartered accountant can help you review your accounting system to ensure the company makes its remittances by the due date.

You can print or download more information about the dates for remitting deductions, the required forms and some helpful publications by visiting the business section of the CCRA website at www.ccra.gc.ca or you can obtain this information by visiting your local tax services office. The website also provides the addresses of the Tax Centres for making your payments.