Know Your Penalties

Remittance of Source Deductions

Up until recent changes in the Federal Budget, if a payroll source deduction remittance was late, the remitter was subject to a penalty equal to 10% of the amount required to be remitted, or 20% if the failure to remit was made knowingly. The penalty applied even if the remittance was only one day late. In addition, interest was charged on both the penalty and remittance until the outstanding amount was paid.

Due to changes under Subsection 227(9) of the Income Tax Act, a graduated penalty regime has been implemented that replaces the 10% penalty, adjusting the penalty from 3% to 10% depending on how late the remittance is made. Effective for remittances due on or after February 26, 2008 the graduated penalty amounts will be applied as follows:

  • 1 ñ 3 days late ñ 3% penalty
  • 4 ñ 5 days late ñ 5% penalty
  • 6 ñ 7 days late ñ 7% penalty
  • More than 7 days late ñ 10% penalty

Tax remittances related to non-residents under Part XIII of the Income Tax Act are also subject to the graduated penalty rules effective for remittances due on or after February 26, 2008.

Mandatory Remittances to Financial Institutions

Threshold 2 remitters, those with associated corporations and multiple payroll accounts with average monthly withholding amounts in excess of $50,000, were subject to a 10% penalty if the remittances weren't made directly at a designated financial institution. After February 26, 2008, if a remittance is received by the CRA at least one full day before the due date, the remitter will be considered to be in compliance with the requirements. Where the remittance is received late, the graduated penalties structure above will be applied.