Remitting Payroll Source Deductions – A Complete Guide by a Montreal CPA Firm Near You

Introduction

When a business in Canada hires employees, one of its most important legal obligations is remitting payroll source deductions—the income tax, CPP, and EI amounts withheld from employee paycheques. These amounts do not belong to the employer. They are considered trust funds, held on behalf of the government and employees. Failure to remit properly or on time is one of the most heavily penalized offences under CRA’s payroll compliance program. Even a single missed remittance can trigger high penalties, interest, and in severe cases, personal liability for directors. Understanding how to remit payroll source deductions correctly and on time is essential for every employer in Canada.

Legal and Regulatory Framework

Payroll remittances are governed by the Income Tax Act, Canada Pension Plan Act, Employment Insurance Act, and administrative rules under CRA. Employers must:

• calculate income tax, CPP, and EI correctly
• withhold amounts from every paycheque
• remit both employee and employer portions
• remit by strict CRA deadlines
• file a T4 slip and T4 Summary each February
• maintain full payroll records for at least six years

Remittance Deadlines

CRA assigns remittance frequencies based on your payroll history:

1. Regular Remitter
   • Due by the 15th of the following month.

2. Quarterly Remitter
   • Eligible only for small employers.
   • Due by the 15th of the month following the quarter.

3. Accelerated Remitter (Threshold 1 or 2)
   • Due up to twice per month or within 3 business days of payroll.

Failing to meet deadlines results in immediate penalties, even if remitted one day late.

Penalty Structure

CRA imposes:
• 3% penalty for 1–3 days late
• 5% penalty for 4–5 days late
• 7% penalty for 6–7 days late
• 10% penalty for more than 7 days
• 20% penalty for repeated failures

CRA also charges interest daily on overdue amounts.

These rules create a strict compliance environment for payroll remittances.

Key Court Decisions

Courts have consistently upheld CRA’s strict enforcement of payroll remittance obligations.

1. Soper v. Canada

Directors were held personally liable for unpaid payroll remittances. The court reaffirmed that source deductions are trust funds, and failure to remit is a serious violation.

2. Hickey v. Canada

The employer argued that payroll errors were unintentional. The court upheld penalties because payroll remittances must be timely and accurate, regardless of intent.

3. ConCreate USL Ltd. v. Canada

CRA reassessed a company for payroll remittances related to misclassified employees; the court supported CRA’s view and emphasized employer responsibility.

4. Royal Winnipeg Ballet v. Canada

Misclassification of workers resulted in unpaid CPP and EI contributions. The employer was held liable for retroactive remittances.

These cases demonstrate that CRA and the courts treat payroll withholding failures as serious non-compliance issues.

Why CRA Targets This Issue

CRA prioritizes payroll audits because:

• payroll deductions represent government trust funds
• unpaid remittances are a major source of federal and provincial revenue loss
• employers often misunderstand deadlines
• misclassification of employees leads to missed remittances
• bookkeeping mistakes lead to under-remittance
• cash-flow issues cause some employers to delay payments
• payroll is easier for CRA to audit than small business expenses

CRA monitors payroll compliance through:

• T4/T4A filing comparisons
• GST/HST data
• bank deposits and payroll processor reports
• random payroll audits
• employee complaints

Noncompliance results in immediate penalties.

Mackisen Strategy

At Mackisen CPA Montreal, we help employers avoid payroll remittance errors and maintain full compliance. Our structured system includes:

1. Setting Up Your Payroll Remittance Program

• registering your CRA payroll account
• determining the correct remitter type
• setting up TD1 forms for new hires
• configuring payroll software for accurate deductions

2. Calculating and Withholding Correct Amounts

• applying federal and provincial tax tables
• calculating CPP, EI, and taxable benefits
• adjusting for bonuses, overtime, vacation pay, and commissions

3. Timely Remittances

• establishing a remittance calendar
• setting reminders to avoid penalties
• reconciling payroll records monthly

4. Payroll Audit Protection

• preparing payroll documentation for CRA review
• helping respond to payroll audit letters
• correcting and amending remittances
• defending employer classification decisions

5. Fixing Past Mistakes

• resolving unpaid payroll liabilities
• negotiating payment arrangements with CRA
• using the Voluntary Disclosures Program when necessary

This ensures compliance, eliminates penalties, and protects employers from future risk.

Real Client Experience

A Montreal restaurant repeatedly remitted payroll taxes a few days late. CRA assessed 10% penalties and daily interest. We set up an automated payroll system and negotiated reduced penalties through relief provisions.

A construction company misclassified employees as contractors. CRA reassessed three years of unpaid CPP and EI. We restructured their payroll system, corrected filings, and implemented proper worker agreements.

A wellness clinic failed to remit taxable benefits on free services to staff. CRA discovered inconsistencies in T4s. We corrected past remittances and trained the owner on taxable benefit rules.

Common Questions

Employers often ask whether CRA gives grace days. No—the deadline is strict.

Others ask whether payroll software guarantees compliance. Only if configured correctly.

Some ask whether bonuses have special withholding rules. Yes—CRA uses lump-sum tax calculation rates.

Another question: Can CRA garnish bank accounts for unpaid remittances? Yes—CRA has strong collection powers.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures accurate payroll deductions and timely remittances. Whether you manage a small business or a fast-growing team, our experts protect your business from penalties and help maintain flawless payroll compliance.