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Jim Maroney Jim Maroney

:: Kinder, gentler approach by CCRA to late fees for employers' payroll remittances

:: It's hard to fathom for many, but CCRA has been attempting to adopt a kinder, gentler approach in its tax collection task. Looking back, CCRA's "new" approach actually started in 1991 with the introduction of what became known as the 'fairness package' - a response at that time to a widely held perception that CCRA applied interest and penalty provisions in an unfair manner.

Expanding its new approach, this week CCRA announced it will be lowering the penalties for employers who voluntarily pay their payroll remittances, but are a few days late.

Those who have ever managed a payroll system know that keeping on top of things is a daunting task at the best of times so any change to soften the impact of the inevitable mistakes is a welcome change.

Currently, regular payroll remitters have to remit payroll deductions to CCRA on or before the 15th day of the month following the month the deductions were made. So, for example, remittances for this month's payroll must be received by CCRA by no later than July 15.

In case you didn't catch it, the operative word here is "received" which is the source of many remittance problems. Mailing remittances to CCRA is always a risky proposition since you could never be certain when your payment will arrive on CCRA's doorstep. Even paying at your financial institution was not a guarantee of timeliness with the occasional remittance showing up in CCRA's records a day late.

Being late is rarely rewarded and the remittance of payroll source deductions is no exception. Under the current rules, CCRA can assess a penalty of 10% of the amount the taxpayer failed to withhold or remit the first time that:

1. the amounts withheld are received past the due date;

2. amounts are withheld but not remitted; or

3. the incorrect amount of CPP, EI, and/or income tax is withheld and remitted.

If you were subject to a penalty for any failure mentioned above in a calendar year, and a later failure occured in the same calendar year, CCRA could apply a 20% penalty if the failure was made knowingly or under circumstances of gross negligence.


Administratively, CCRA provided one "freebie" for new remitters but from that point onward penalties were generally applied as a matter of course. Needless to say, this cut-and-dried approach rankled many a payroll clerk and rightly so.

To address what many have viewed as punitive rules, starting in July, the CCRA will implement graduated penalty rates replacing the current flat penalty rate of 10%. Under the new rules, penalties of 3 per cent will be applied to remittances that are late 3 days or less, 5 per cent for remittances that are 4 or 5 days late, 7 per cent for remittances that are 6 or 7 days late, and 10 per cent for remittances that are 8 or more days late.

Notice that the new provisions only apply where remittances are late. Employers who fail to withhold source deductions or withhold source deductions in the incorrect amount will continue to be subject to penalties of 10 per cent or 20 per cent when the failure was made knowingly or under circumstances amounting to gross negligence.

The announcement points out that CCRA is implementing this change as a pilot project and will inform employers of this new penalty structure. Starting June 23, 2003, a verse explaining the incremental structure will be included on statements of payroll accounts sent to employers.

Chronic late remitters can expect no mercy from CCRA under these new rules. For employers who make an honest effort but are late within a few days of the due date, the new, kinder, gentler approach is welcomed news.



Free Tax Advice Article Submitted to Income Tax Canada.net exclusively by Jim Maroney
CA Canadian Chartered Accountant with Brown, Andrews & Maroney in Maple Ridge, BC, Canada

Official details about this and other topics on income taxes can be found in English & Francais at www.ccra-adrc.gc.ca
Canada Revenue Agency (CRA) / l'Agence du revenu du Canada (ARC) offers bilingual information on its website for
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