What Happens If You Don't File Payroll Remittances on Time?
Payroll deductions are trust funds. They belong to your employees and CRA. Late remittance penalties range from 3% to 20%. Directors are personally liable. CRA treats this more seriously than any other tax obligation.
If you remit payroll deductions late in Canada, CRA charges an escalating penalty based on how many days late: 3% for 1 to 3 days late, 5% for 4 to 5 days, 7% for 6 to 7 days, and 10% for 8 or more days late or for failure to remit. If you were penalized for late remittance in the same calendar year, the penalty doubles to 20% of the unremitted amount. On top of the penalty, CRA charges interest at the prescribed rate plus 4%, compounded daily. Payroll deductions (income tax withheld, CPP and EI) are trust funds that belong to employees and the government. Directors of a corporation are personally liable for unremitted payroll under section 227.1 of the Income Tax Act. CRA can freeze your bank account, garnish your receivables and pursue the directors' personal assets without a court order. Trust fund debts survive personal bankruptcy.
Late Remittance Penalties: The Escalating Scale
CRA uses an escalating penalty scale for late payroll remittances. The penalty percentage increases with the number of days late. This is different from the T2 late filing penalty (which is a flat percentage plus monthly additions) and the GST/HST late filing penalty (1% + 0.25%/month). Payroll penalties are designed to be immediately punitive because the money is held in trust.
First Offence (No Penalty in the Same Calendar Year)
| Days Late | Penalty Rate | On $10,000 Remittance | On $25,000 Remittance | On $50,000 Remittance |
|---|---|---|---|---|
| 1 to 3 days | 3% | $300 | $750 | $1,500 |
| 4 to 5 days | 5% | $500 | $1,250 | $2,500 |
| 6 to 7 days | 7% | $700 | $1,750 | $3,500 |
| 8 or more days | 10% | $1,000 | $2,500 | $5,000 |
| Failure to remit (not just late) | 10% | $1,000 | $2,500 | $5,000 |
Repeat Offence (Second or Subsequent Penalty in the Same Calendar Year)
| Situation | Penalty Rate | On $10,000 | On $25,000 | On $50,000 |
|---|---|---|---|---|
| Any late remittance after the first penalty in the same calendar year | 20% | $2,000 | $5,000 | $10,000 |
The 20% Repeat Penalty Is Immediate and Severe. If you were penalized for a late remittance in January and remit late again in March of the same year, the March penalty is 20% of the full unremitted amount regardless of how many days late. A business with a $25,000 monthly remittance that is late twice in the same year pays $750 on the first offence (3 days late) and $5,000 on the second (even if only 1 day late). Total penalty for two late remittances: $5,750. Payroll Compliance →
Payroll Remittance Deadlines by Tier
CRA assigns your remittance frequency based on your Average Monthly Withholding Amount (AMWA): the average of all payroll deductions (income tax, CPP and EI) remitted monthly over the past two calendar years. The higher your AMWA, the more frequently you must remit and the shorter the deadline.
| Remitter Type | AMWA Threshold | Remittance Deadline | Example |
|---|---|---|---|
| Quarterly | Under $1,000 + perfect compliance history | 15th of the month after the quarter | Q1 (Jan-Mar) payroll: due April 15 |
| Regular (monthly) | Under $25,000 | 15th of the month following the pay period | January payroll: due February 15 |
| Accelerated Threshold 1 | $25,000 to $99,999 | Twice monthly: pay dates 1st-15th due by 25th. Pay dates 16th-end due by 10th of the next month. | Payroll on Jan 10: due Jan 25. Payroll on Jan 20: due Feb 10. |
| Accelerated Threshold 2 | $100,000 or more | Within 3 business days of each pay date | Payroll on Monday Jan 6: due by Thursday Jan 9 |
Accelerated Remitters Have Almost No Margin for Error. A Threshold 2 remitter with a $100,000 bi-weekly payroll must remit within 3 business days. One missed deadline: $10,000 penalty (10% on $100,000). A second miss in the same year: $20,000 penalty (20%). Two missed remittances in a single year: $30,000 in penalties on $200,000 of payroll. This is why payroll must be automated and never managed manually for larger employers. Payroll Compliance →
Payroll Deductions Are Trust Funds: Why CRA Treats This Differently
When you deduct income tax, CPP and EI from your employees' paycheques, that money does not belong to the corporation. It belongs to the employees (CPP, EI) and the government (income tax withheld). The employer is holding it in trust until remittance to CRA. This trust fund classification gives CRA extraordinary enforcement powers that do not apply to corporate income tax or even GST/HST.
| Trust Fund Consequence | What It Means for Your Business |
|---|---|
| Director personal liability (s.227.1) | Every director of the corporation is jointly and severally liable for unremitted payroll deductions. CRA can pursue each director's personal bank accounts, investment accounts, real property and any other personal assets. If the corporation has 3 directors, CRA can collect the full amount from any one of them. |
| No limitation period for trust debts | CRA can assess directors up to 2 years after the director resigns. But for amounts that were due while the director served, the assessment can be made at any time within that 2-year window. There is no statute of limitations on the underlying corporate debt itself. |
| Survives personal bankruptcy | Trust fund debts are not dischargeable in a personal bankruptcy of the director. Even if the corporation is dissolved and the director declares personal bankruptcy, the trust fund debt to CRA survives the bankruptcy and remains owing. |
| Priority claim in insolvency | In a corporate insolvency, CRA's claim for unremitted payroll trust funds ranks ahead of most creditors including secured creditors with registered security interests. CRA gets paid before the bank. |
| Deemed trust over corporate assets | CRA has a deemed trust over all corporate assets equal to the amount of unremitted payroll deductions. This means CRA can claim any corporate asset (bank balances, equipment, receivables) up to the unremitted amount, ahead of other creditors. |
| Criminal prosecution potential | Willfully failing to remit payroll deductions or willfully failing to withhold can be prosecuted as a criminal offence under the Income Tax Act. Penalties: fines of $1,000 to $25,000 and up to 12 months imprisonment per offence. |
Director Liability: When CRA Comes After You Personally
| Question | Answer |
|---|---|
| Who is liable? | Every director at the time the payroll deductions should have been remitted. All directors are jointly and severally liable for the full amount. |
| What amounts are directors liable for? | Unremitted employee income tax, employee CPP, employer CPP, employee EI and employer EI. The total includes both the employee and employer portions of CPP and EI. |
| What about corporate income tax? | Directors are NOT personally liable for corporate income tax. Only trust fund amounts (payroll deductions and HST). |
| What about penalties and interest? | Directors are liable for the trust fund amount plus related penalties and interest. The 3% to 20% late remittance penalty and the daily compounding interest apply to the director assessment. |
| Is there a defence? | Due diligence defence only. The director must prove they took reasonable steps to ensure the corporation would remit on time. Simply not knowing or delegating to a bookkeeper is not sufficient. The director must have actively monitored remittance compliance. |
| What if I resigned as director? | CRA can assess a former director up to 2 years after the date of resignation. Amounts that were due while you were a director remain your liability even after resignation. |
| Can CRA assess without assessing the corporation first? | CRA must first assess the corporation and the corporation must have failed to pay. CRA can then assess the directors. In practice, CRA often assesses the corporation and directors simultaneously when the corporation is insolvent. |
| What if I am the sole director and shareholder? | You are personally liable for the full amount. There is no one else to share the liability with. This is the most common scenario for owner-managed corporations. |
Most Owner-Managers Do Not Realize They Are Personally Liable Until CRA Assesses Them. A sole director/shareholder who misses 3 months of payroll remittances on a $15,000 monthly remittance faces: $4,500 in penalties (10% x 3 months) plus $1,500 in interest plus the $45,000 in unremitted trust funds. CRA sends one letter and then freezes the director's personal bank account. The due diligence defence requires proof that the director actively tried to prevent the failure. "I did not know" or "my bookkeeper was supposed to do it" is not a defence. Payroll Compliance →
Failure to Withhold: The Other Payroll Penalty
Late remittance is not the only payroll penalty. If the employer fails to deduct income tax, CPP or EI from an employee's pay, CRA can assess a separate penalty for failure to withhold.
| Penalty | Rate | When It Applies |
|---|---|---|
| Failure to deduct | 10% of the amount that should have been deducted | The employer did not withhold income tax, CPP or EI from an employee's pay. CRA assesses the employer for both the employee and employer portions plus a 10% penalty on the undeducted amount. |
| Gross negligence (s.227(9)) | 20% of the amount | If the failure to deduct is made knowingly or under circumstances amounting to gross negligence. The penalty doubles from 10% to 20%. |
| Repeat failure to deduct | 20% of the amount | If the employer has been assessed a failure-to-deduct penalty in any of the 3 preceding years. |
The Most Common Failure to Withhold: Misclassifying employees as independent contractors. If CRA determines that a contractor should have been classified as an employee, the employer owes all back CPP (both portions), all back EI (both portions), all income tax that should have been withheld, plus the 10% failure-to-deduct penalty on every dollar that was not withheld. On 5 reclassified workers at $80,000/year over 3 years: $96,000 to $135,000 in back deductions, penalties and interest. Payroll Compliance →
Real Cost Calculations by Scenario
| Scenario | Monthly Remittance | Days/Months Late | First/Repeat | Penalty | Interest (approx) | Total Extra Cost |
|---|---|---|---|---|---|---|
| Small business, 2 days late | $5,000 | 2 days | First | $150 (3%) | $8 | $158 |
| Restaurant, 5 days late | $8,000 | 5 days | First | $400 (5%) | $11 | $411 |
| Construction company, 10 days late | $15,000 | 10 days | First | $1,500 (10%) | $42 | $1,542 |
| IT firm, second late remittance | $20,000 | 3 days | Repeat | $4,000 (20%) | $17 | $4,017 |
| Manufacturer, 3 months missed | $30,000/month | 3 months | First + Repeat | $3,000 + $6,000 + $6,000 | $2,250 | $17,250 |
| Trucking company, never remitted (6 months) | $25,000/month | 6 months | First + 5x Repeat | $2,500 + ($5,000 x 5) | $7,500 | $35,000 |
Six Months of Missed Remittances Is a Business-Ending Event. A company with a $25,000 monthly remittance that does not remit for 6 months accumulates $150,000 in unremitted trust funds plus $35,000 in penalties and interest. Total: $185,000. CRA freezes the corporate bank account and assesses the directors personally. The directors' personal bank accounts are frozen next. This is not hypothetical. We see this pattern every year. Set up automated remittances. Never manage payroll manually.
What CRA Does When You Do Not Remit
| CRA Action | What Happens | Timeline |
|---|---|---|
| Penalty assessment | CRA automatically assesses the 3% to 10% penalty on the late remittance. No warning. No grace period. The penalty is assessed on the first day late. | Immediate (automatic) |
| Trust examination | CRA opens a trust examination of the entire payroll operation. The examiner reviews all payroll records, remittance history, bank statements and worker classifications for the current and prior years. | 1 to 6 months after repeated late or missed remittances |
| Requirement to Pay (bank freeze) | CRA issues a legal demand to your bank to freeze the account and transfer the balance to CRA. Also issued to customers and anyone who owes the corporation money. No court order required. | After assessment and non-payment. Can be immediate. |
| Director liability assessment | CRA assesses each director personally for the unremitted trust fund amount plus penalties and interest. The directors' personal bank accounts, property and assets are at risk. | After corporate assessment. Often simultaneous if the corporation is insolvent. |
| Garnishment of receivables | CRA sends a Requirement to Pay to your customers and clients, redirecting payments owed to your business directly to CRA. | After assessment. No court order. |
| Prosecution | Willful failure to remit or failure to withhold can be prosecuted. Fines: $1,000 to $25,000. Imprisonment: up to 12 months per offence. | Rare for first offence. More common with repeated willful non-compliance. |
How to Fix It If You Have Missed Remittances
| Situation | What to Do | Outcome |
|---|---|---|
| Late by a few days (first time) | Remit immediately. The 3% penalty is automatic. Pay the full amount including the penalty and interest. Contact CRA to request a first-time penalty waiver if you have a clean compliance history. | 3% penalty assessed. First-time waiver possible (not guaranteed). Interest minimal if paid quickly. |
| Late by 1 to 2 pay periods | Remit all outstanding amounts immediately. File any outstanding PD7A reconciliation. Contact CRA to confirm the account is current. Set up automated remittances to prevent recurrence. | 10% penalty on each late remittance. Interest from due dates. CRA may open a trust examination. |
| Multiple months missed | Remit everything you can immediately. Contact CRA to arrange a payment plan for the remaining balance. File all outstanding remittance forms. Set up automation. | Penalties on each missed remittance (first at 10%, subsequent at 20%). Payment plan: 12 to 60 months. Interest continues during the plan. |
| CRA issued a Requirement to Pay | Contact a CPA immediately. The RTP is already in effect and your bank account is frozen. We negotiate with CRA to release the RTP, arrange a payment plan and prevent further enforcement action. | RTP can be released if a payment plan is arranged. Must demonstrate the ability and willingness to pay. |
| Director liability assessment received | Contact a CPA immediately. You have 90 days to file a Notice of Objection. We review whether the due diligence defence applies and file the objection with supporting evidence. | Objection filed. If due diligence is demonstrated (rare for sole directors), the assessment may be reversed. Otherwise, negotiate a payment plan on the personal assessment. |
| Penalty seems excessive | File a Taxpayer Relief Program (TRP) application for penalty reduction. CRA considers extraordinary circumstances and compliance history. | Penalties reduced or cancelled. Interest generally not waived. We have reduced payroll penalties by $3,000 to $20,000 for clients. |
We Handle Late and Missed Payroll Remittances. If you have missed remittances, received a CRA trust examination notice, a Requirement to Pay or a director liability assessment, we respond on your behalf, negotiate with CRA, file penalty relief applications and arrange payment plans. CRA audit defence is FREE for all existing clients. CRA Audit Resolution →
How to Prevent Late Payroll Remittances
| Action | Why It Works |
|---|---|
| Automate remittances through your payroll software | Wagepoint, QBO Payroll and most payroll platforms can remit directly to CRA on the due date. No manual action required. Eliminates human error. |
| Set up a separate payroll trust account | Transfer payroll deductions to a separate bank account on each pay date. The money is set aside and never used for operations. When the remittance is due, the cash is already there. |
| Calendar every remittance deadline | Set reminders 3 days before each due date. Regular remitters: 12th of each month (3 days before the 15th). Accelerated: calendar each pay date + 3 business days. |
| Use a CPA for payroll processing | We calculate CPP, EI and income tax, process remittances on time and confirm receipt with CRA. $125/month for the first employee, $75/month each additional. The cost of one late remittance penalty exceeds a full year of payroll service. |
| Monitor your PD7A statement monthly | The PD7A is CRA's record of what you owe vs. what you have remitted. Check it monthly in My Business Account. Any discrepancy must be resolved immediately before it compounds. |
Our Payroll Service Eliminates Late Remittance Risk. We process payroll, calculate all deductions, remit on time and confirm receipt with CRA for every pay period. $125/month for the first employee, $75/month each additional. The cost of a single 10% late penalty on a $15,000 remittance ($1,500) exceeds the annual cost of outsourced payroll for most small businesses. Payroll Compliance →
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