Insights
October 17, 2025
Mackisen
Payroll Tax Compliance in Canada: A Comprehensive Guide for Business Owners
What Are Payroll Taxes and When Must You Remit Them?
Payroll taxes (also called source deductions) are amounts employers must withhold from employees’ pay and remit to the government. They typically include:
Income tax – Federal and provincial/territorial tax based on TD1 forms and brackets.
CPP/QPP contributions – Deduct the employee share and the employer matches (CPP outside Quebec; QPP in Quebec).
EI/QPIP premiums – Deduct the employee EI premium (or QPIP in Quebec) and remit the employer portion (EI at 1.4× the employee amount).
These amounts—plus the employer portions—are held in trust until remitted. Do not use them for operating cash.
Remittance Frequency & Due Dates
Most new/smaller employers: Monthly—by the 15th of the following month.
Accelerated remitters: Medium/large employers remit twice monthly or within 3 business days of each payroll, depending on CRA remitter type (Regular, Threshold 1, Threshold 2). CRA notifies you of your status.
Eligible small employers: Some may remit quarterly if withholdings are very low.
How to pay: Online banking, My Business Account, or other approved methods. If the due date falls on a weekend/holiday, the next business day applies.
T4 Slips & Annual Filing
File T4 slips for each employee and the T4 Summary by the last day of February following the calendar year.
Provide employees with their T4s by the same deadline.
Pro tip: Park withholdings in a separate bank sub-account and set automated reminders so cash is always there on due date.
Penalties for Late Filing, Late Remittance, and Failure to Remit
Late Filing (T4s / Information Returns)
Penalties range from $100 to $7,500, scaling with slip count and days late.
Even a small employer pays at least $100 if T4s are late.
Failure to Deduct
If you should have withheld CPP/EI/income tax but didn’t, the penalty is 10% of the amount not deducted.
20% can apply for repeat or gross-negligence cases.
Late or Non-Remittance (after deducting)
1–3 days late: 3%
4–5 days late: 5%
6–7 days late: 7%
>7 days late or not remitted: 10%
A repeat, willful/gross negligence miss in the same year can be 20%.
Because source deductions are trust funds, CRA treats these deadlines very seriously.
How CRA Interest Works on Arrears
Starts the day after the due date on any unpaid amount—no grace period.
Rate set quarterly and compounded daily.
Interest also applies to unpaid penalties.
Interest/penalties aren’t deductible, so delays get expensive fast. If you can’t pay in full, pay what you can immediately to curb compounding and arrange the balance.
Director Liability (Personal Exposure)
Under federal law, corporate directors can be held personally liable for unremitted employee source deductions (and GST/HST under a parallel rule).
CRA typically must show:
The corporation failed to deduct/withhold/remit required amounts.
CRA couldn’t collect from the corporation (e.g., insolvent/bankrupt, enforcement failed).
The assessment against a director is issued within two years of the person ceasing to be a director.
Defense – Due Diligence: Directors can avoid liability if they prove they took all reasonable steps to prevent non-remittance (e.g., segregating trust funds, reviewing proof of remittance, securing financing to pay CRA, acting promptly when issues surfaced). Passive directors who “didn’t know” usually fail this test.
Practical safeguards
Treat payroll/QST/GST as first-priority payments.
Keep a separate trust sub-account for source deductions.
Obtain and review remittance confirmations monthly.
If problems can’t be fixed, escalate immediately—consider resigning (which starts the 2-year clock) and document your actions.
If the Corporation Can’t Pay: Practical Options
Call CRA Collections and arrange a payment plan. Interest continues, but you can prevent garnishments/liens by engaging early.
Voluntary Disclosures Program (VDP). If you have past unreported payroll issues and CRA hasn’t contacted you yet, a VDP can eliminate penalties (you’ll still pay tax and usually interest).
Taxpayer Relief (Fairness). For extraordinary circumstances (illness, disaster, CRA error), CRA may cancel/waive penalties and/or interest. Request in writing with evidence.
Financing. A short-term loan may be cheaper than mounting penalties/interest.
Insolvency solutions (via a Licensed Insolvency Trustee). Proposals can restructure debts; bankruptcy stops further accumulation—but director liability for source deductions can survive, so seek advice early.
Do not ignore CRA. Non-engagement leads to bank freezes, RTPs to clients, liens, and director assessments.
Case Studies (Anonymized)
1) “A Few Days Late” Became Costly
A manufacturer remitted late multiple times. Initial 5–10% penalties ballooned with repeats and interest. After a payment plan and setting up a trust sub-account, future penalties stopped. A fairness request later reduced some charges due to documented medical hardship.
2) Director Assessment After Bankruptcy
A construction firm paid net wages but withheld and didn’t remit during a cash crunch. After bankruptcy, CRA assessed the directors personally. The court rejected their due-diligence defense because they continued operating while not remitting.
3) VDP Fixed Misclassification
A startup paid “contractors” who were effectively employees. Before CRA contacted them, the company filed a VDP, paid the source deductions plus interest, and had penalties waived. Workers were moved onto payroll.
Ask the Expert: Quick Payroll Compliance Q&A
What payroll taxes must I deduct and remit?
Income tax, CPP (QPP in Quebec), and EI (QPIP in Quebec). Remit employee deductions plus the employer share (CPP matches employee; EI is 1.4× employee).
How often do I remit?
Usually monthly by the 15th of the following month. CRA may reclassify you to accelerated remitter (twice monthly or within 3 business days). Some small new employers can remit quarterly.
When are T4s due?
By the last day of February following the calendar year. Provide slips to employees by the same date.
What happens if I miss a remittance deadline?
Penalties of 3%, 5%, 7%, or 10% depending on how late, plus daily-compounded interest. Repeat/gross negligence cases can be 20%.
Can CRA waive penalties/interest?
Sometimes—via Taxpayer Relief for extraordinary circumstances. Apply with documentation; relief doesn’t reduce the actual tax.
As a director, can I be personally liable?
Yes, for unremitted employee withholdings if CRA can’t collect from the corporation and you weren’t duly diligent. Keep trust funds segregated, verify payments, and act fast if issues arise.
Bottom Line
Remit on time, every time.
Reconcile payroll, T4s, and general ledger regularly.
Document everything (calculations, logs, confirmations).
Engage CRA early if a shortfall happens—more options, less pain.
Directors: monitor compliance actively; payroll trust funds are never a source of working capital.
What Are Payroll Taxes and When Must You Remit Them?
Payroll taxes (also called source deductions) are amounts employers must withhold from employees’ pay and remit to the government. They typically include:
Income tax – Federal and provincial/territorial tax based on TD1 forms and brackets.
CPP/QPP contributions – Deduct the employee share and the employer matches (CPP outside Quebec; QPP in Quebec).
EI/QPIP premiums – Deduct the employee EI premium (or QPIP in Quebec) and remit the employer portion (EI at 1.4× the employee amount).
These amounts—plus the employer portions—are held in trust until remitted. Do not use them for operating cash.
Remittance Frequency & Due Dates
Most new/smaller employers: Monthly—by the 15th of the following month.
Accelerated remitters: Medium/large employers remit twice monthly or within 3 business days of each payroll, depending on CRA remitter type (Regular, Threshold 1, Threshold 2). CRA notifies you of your status.
Eligible small employers: Some may remit quarterly if withholdings are very low.
How to pay: Online banking, My Business Account, or other approved methods. If the due date falls on a weekend/holiday, the next business day applies.
T4 Slips & Annual Filing
File T4 slips for each employee and the T4 Summary by the last day of February following the calendar year.
Provide employees with their T4s by the same deadline.
Pro tip: Park withholdings in a separate bank sub-account and set automated reminders so cash is always there on due date.
Penalties for Late Filing, Late Remittance, and Failure to Remit
Late Filing (T4s / Information Returns)
Penalties range from $100 to $7,500, scaling with slip count and days late.
Even a small employer pays at least $100 if T4s are late.
Failure to Deduct
If you should have withheld CPP/EI/income tax but didn’t, the penalty is 10% of the amount not deducted.
20% can apply for repeat or gross-negligence cases.
Late or Non-Remittance (after deducting)
1–3 days late: 3%
4–5 days late: 5%
6–7 days late: 7%
>7 days late or not remitted: 10%
A repeat, willful/gross negligence miss in the same year can be 20%.
Because source deductions are trust funds, CRA treats these deadlines very seriously.
How CRA Interest Works on Arrears
Starts the day after the due date on any unpaid amount—no grace period.
Rate set quarterly and compounded daily.
Interest also applies to unpaid penalties.
Interest/penalties aren’t deductible, so delays get expensive fast. If you can’t pay in full, pay what you can immediately to curb compounding and arrange the balance.
Director Liability (Personal Exposure)
Under federal law, corporate directors can be held personally liable for unremitted employee source deductions (and GST/HST under a parallel rule).
CRA typically must show:
The corporation failed to deduct/withhold/remit required amounts.
CRA couldn’t collect from the corporation (e.g., insolvent/bankrupt, enforcement failed).
The assessment against a director is issued within two years of the person ceasing to be a director.
Defense – Due Diligence: Directors can avoid liability if they prove they took all reasonable steps to prevent non-remittance (e.g., segregating trust funds, reviewing proof of remittance, securing financing to pay CRA, acting promptly when issues surfaced). Passive directors who “didn’t know” usually fail this test.
Practical safeguards
Treat payroll/QST/GST as first-priority payments.
Keep a separate trust sub-account for source deductions.
Obtain and review remittance confirmations monthly.
If problems can’t be fixed, escalate immediately—consider resigning (which starts the 2-year clock) and document your actions.
If the Corporation Can’t Pay: Practical Options
Call CRA Collections and arrange a payment plan. Interest continues, but you can prevent garnishments/liens by engaging early.
Voluntary Disclosures Program (VDP). If you have past unreported payroll issues and CRA hasn’t contacted you yet, a VDP can eliminate penalties (you’ll still pay tax and usually interest).
Taxpayer Relief (Fairness). For extraordinary circumstances (illness, disaster, CRA error), CRA may cancel/waive penalties and/or interest. Request in writing with evidence.
Financing. A short-term loan may be cheaper than mounting penalties/interest.
Insolvency solutions (via a Licensed Insolvency Trustee). Proposals can restructure debts; bankruptcy stops further accumulation—but director liability for source deductions can survive, so seek advice early.
Do not ignore CRA. Non-engagement leads to bank freezes, RTPs to clients, liens, and director assessments.
Case Studies (Anonymized)
1) “A Few Days Late” Became Costly
A manufacturer remitted late multiple times. Initial 5–10% penalties ballooned with repeats and interest. After a payment plan and setting up a trust sub-account, future penalties stopped. A fairness request later reduced some charges due to documented medical hardship.
2) Director Assessment After Bankruptcy
A construction firm paid net wages but withheld and didn’t remit during a cash crunch. After bankruptcy, CRA assessed the directors personally. The court rejected their due-diligence defense because they continued operating while not remitting.
3) VDP Fixed Misclassification
A startup paid “contractors” who were effectively employees. Before CRA contacted them, the company filed a VDP, paid the source deductions plus interest, and had penalties waived. Workers were moved onto payroll.
Ask the Expert: Quick Payroll Compliance Q&A
What payroll taxes must I deduct and remit?
Income tax, CPP (QPP in Quebec), and EI (QPIP in Quebec). Remit employee deductions plus the employer share (CPP matches employee; EI is 1.4× employee).
How often do I remit?
Usually monthly by the 15th of the following month. CRA may reclassify you to accelerated remitter (twice monthly or within 3 business days). Some small new employers can remit quarterly.
When are T4s due?
By the last day of February following the calendar year. Provide slips to employees by the same date.
What happens if I miss a remittance deadline?
Penalties of 3%, 5%, 7%, or 10% depending on how late, plus daily-compounded interest. Repeat/gross negligence cases can be 20%.
Can CRA waive penalties/interest?
Sometimes—via Taxpayer Relief for extraordinary circumstances. Apply with documentation; relief doesn’t reduce the actual tax.
As a director, can I be personally liable?
Yes, for unremitted employee withholdings if CRA can’t collect from the corporation and you weren’t duly diligent. Keep trust funds segregated, verify payments, and act fast if issues arise.
Bottom Line
Remit on time, every time.
Reconcile payroll, T4s, and general ledger regularly.
Document everything (calculations, logs, confirmations).
Engage CRA early if a shortfall happens—more options, less pain.
Directors: monitor compliance actively; payroll trust funds are never a source of working capital.
