Most enforcement of government payroll regulation is reactive, initiated by employee complaint. Similarly, while the possible penalties for non-compliance can theoretically be severe – including potential jail sentences – such penalties are rarely, if ever, imposed.
However, there is one area of government regulation where significant penalties, at least financial ones, are actively and regularly imposed. These are penalties for employers who fail to remit CRA source deductions within the required due dates.
The default due date for CRA remittances is the 15th of the month following. For example, November 15 is the default due date for employee direct deposits dated October 2.
This default applies until the start of the 3rd tax year in which the employer is required to make remittances. For example, if an employer is first required to make remittances for the month of November, 2012, the default monthly due dates apply until remittances for the first month of the 2014 tax year.
Starting with this 3rd tax year, the CRA assigns due dates based on each employer’s monthly average remittance, calculated based on the remittances 2 years prior. For example, due dates for 2014 are based on the average monthly remittance for 2012. However, if the immediately prior year is more favourable, employers can contact the CRA (the phone number is given on page 44 of the 2013 Employers’ Guide, T4001) to have remittance due dates based on this year instead.
CRA monthly average remittances are calculated by dividing income tax, CPP and EI remittances, for the year concerned by a default 12. If the employer wasn’t liable to make remittances in all 12 months concerned, use the number of months remittances were required. For example, if a business operates only from May to October, the monthly average is calculated by dividing remittances for the year by 6. This also applies to employers who start operations mid-way through a tax year.
There are also special rules for associated corporations – corporations controlled by shareholders that don’t deal at arm’s length. This could be a parent and its wholly-owned subsidiaries or a group of corporations controlled by related persons, such as a husband and wife. Associated corporations share common CRA remittance due dates, based on a single monthly average calculated from all remittances for the associated corporations.
Based on these rules, the following table shows the 4 remittance frequencies that apply for CRA source deduction purposes:
Average Monthly Remittance
|Quarterly||Less than $3,000||January to March, April to June, July to September and October to December||The 15th of the month following, i.e. April 15th for the 1st quarter.|
|Monthly (default)||At least $3,000, but less than $15,000||Each calendar month.||The 15th of the month following, i.e. June 15th for payments made in May.|
|Threshold 1||At least $15,000, but less than $50,000||1st to 15th||25th of the month|
|16th to month-end||The 10th of the month following|
|Threshold 2||At least $50,000||1st to 7th||Within 3 business days of the end of each remittance period.|
|8th to 14th|
|15th to 21st|
|22nd to month-end|
The due dates described above are adjusted for Saturdays, Sundays, statutory holidays and other non-banking days (see the list of non-banking days maintained by the Canada Payments Association).
These adjustments are of two different types. For quarterly, monthly or Threshold 1 remitters, if the 10, 15th or 25th falls on a non-banking day, the remittance is due the next banking day. For Threshold 2 remitters, where remittances are due within 3 days after the end of each remittance period, any non-banking day within this 3 day limit doesn’t count. For example, June 15, 2013, was a Saturday. Remittances otherwise due that day were not late if they were paid on June 17, 2013. Similarly, September 14, 2013 was a Saturday. Three business days after was Wednesday, September 18, 2013. Threshold 2 remittances for the 2nd remittance period in that month were not late if they were paid on the 18th.
Unlike most of forms of payroll non-compliance, the CRA actively applies penalties and interest for remittances not made by these due dates, to the point that levying these has probably been automated within the CRA’s computer systems.
Interest owing on late remittances is calculated based on rates set quarterly by the CRA. For the last quarter of 2013, the CRA charges employers 6% on late remittances.
The penalties for failing to remit are based on how late the remittance was in calendar days. For remittances received by the CRA:
- Between 1 and 3 days after the due date, the penalty is a flat 3%;
- Between 4 and 5 days after the due date, the penalty is a flat 5%;
- Between 6 and 7 days after the due date, the penalty is a flat 7%; and
- After 7 days, the penalty is a flat 10%.
For example, if a remittance was due Tuesday, October 15, 2013 and was received by the CRA on Monday, October 21, that is 6 days after the due date, so if this was the first late remittance in 2013, the penalty owing is 7%.
Where there have been two late remittances within a single tax year and the 2nd remittance was late knowingly or as gross negligence by the employer, the CRA may assess a flat 20% penalty.
Since CRA remittance amounts themselves can be substantial amounts, in the hundreds of thousands, if not millions of dollars, these penalties and interest amounts can be significant.
Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 20 years’ experience in all aspects of the industry. He can be reached at firstname.lastname@example.org, (250) 228-5280 or visit www.alanrmcewen.com for more information. This article was first posted on Canadian HR Reporter on October 28, 2013.