Payroll Mistakes, Switching Problems and Official Sources
CRA payroll penalties: late remittances, failure to deduct, late T4s and paper filing
How CRA payroll penalties work for late remittances, failure to deduct, late T4s and paper filing, with worked examples and how software helps.
The CRA's payroll penalties mostly punish lateness and omissions, not complicated mistakes. A remittance that arrives late attracts a graduated penalty of 3% (1 to 3 days late), 5% (4 or 5 days), 7% (6 or 7 days) or 10% (more than 7 days, or not remitted), generally applied to the part of the remittance above $500, plus interest; failing to deduct CPP, EI or tax can cost 10% of the amount not deducted, and repeat failures done knowingly or with gross negligence can reach 20%. Late T4 filing has its own penalty scale based on the number of slips, and filing on paper when you have more than five slips of a type attracts a separate penalty. Payroll software reduces these risks mainly through due-date reminders, automatic remittances and reconciliation reports; the employer still carries the liability.
This guide is part of common payroll mistakes and official sources. Penalty amounts below are as published by the CRA and commonly summarised; the CRA's payroll penalty pages are the authority, so check them for the current figures and conditions.
Penalty overview
| Situation | Penalty (general rule) | Notes |
|---|---|---|
| Remittance 1–3 days late | 3% of the amount above $500 | Plus interest at the prescribed rate; on the full amount if knowing or grossly negligent |
| 4–5 days late | 5% (same base) | |
| 6–7 days late | 7% (same base) | |
| More than 7 days late, or not remitted | 10% (same base) | 20% possible for a second failure in the same year if knowing or grossly negligent |
| Failure to deduct CPP, EI or income tax | 10% of the amount that should have been deducted | 20% for a second failure in the same year if knowing or grossly negligent; employer also liable for the amount itself |
| Deducted but not remitted | Treated as late or failed remittance | Deducted amounts are held in trust for the Crown; directors can be personally liable |
| T4 slips filed late | Graduated by number of slips and days late | Set out in the CRA's information-return penalty table |
| Paper filing above the electronic threshold (more than 5 slips of a type) | Graduated by number of slips, starting at $125 for 6–50 slips | Calculated per return type |
| Payment over $10,000 not made electronically | $100 per failure in the legislation | CRA has said it is not currently enforcing; check its current position |
Penalties are calculated per remittance, so one missed due date for a threshold 1 or 2 accelerated remitter can mean several penalties.
Worked examples (illustrative amounts)
Late remittance. A regular remitter's June remittance of $12,176 is due 15 July. It is paid on 20 July, five days late.
- Penalty: the CRA generally applies it only to the part above $500, so 5% × ($12,176 − $500) = 5% × $11,676 = $583.80
- Plus interest on $12,176 for five days at the CRA's prescribed rate
Had it been paid 9 days late, the penalty would be 10%: $1,167.60. If the failure were knowing or grossly negligent, the penalty would apply to the full $12,176.
Failure to deduct. A bonus of $8,000 is paid through an off-cycle cheque outside the payroll system, with no deductions. The employer is liable for the CPP, EI and income tax that should have been withheld (and its own CPP and EI share), plus 10% of the amount not deducted. If the missed deductions total $2,400, the penalty is $240, on top of the $2,400 the employer must pay, which it may then try to recover from the employee within the rules.
Paper filing. An employer with 12 employees mails paper T4s. Because it filed more than five T4 slips on paper, the CRA can assess a penalty of $125 (the 6–50 slip tier) even if the slips were on time and correct.
Interest and the trust obligation
Deductions withheld from employees are held in trust for the Crown. They are not working capital. The CRA can pursue the business and, for corporations, its directors personally for unremitted source deductions, subject to the due-diligence defence. That makes source deductions the debt to pay first if cash is short.
Interest is compounded daily at the CRA's prescribed rate on late amounts and on penalties. The rate is set quarterly; check the CRA's prescribed interest rates page.
Relief
The CRA can cancel or waive penalties and interest under the taxpayer relief provisions in limited circumstances, such as natural disasters, serious illness, or CRA error or delay. Requests are made on form RC4288; the CRA only considers penalties for tax years ending in, and interest accrued during, the ten calendar years before the year of the request. A software outage or a vendor's mistake is not automatically grounds for relief; document what happened and what you did to pay on time.
How software reduces penalty risk
| Risk | Software feature | Limit |
|---|---|---|
| Missed due date | Due-date calendar by remitter type, reminders | You must still approve or fund the payment |
| Wrong amount | Remittance report from the payroll ledger | Off-cycle cheques outside the system are missed |
| Late payment | Automatic remittance (provider debits and pays) | If the debit fails, you are still late |
| Failure to deduct | Pay code flags; bonus method | Wrong flags at set-up cause systematic errors |
| Late or paper T4s | Electronic filing from the software | You must approve and file on time |
| Mismatch at year-end | Reconciliation report | Only as good as the payments recorded |
The most useful contractual protection is a clear clause on who pays a penalty caused by the provider's error. Many providers cover penalties caused by their own processing errors but exclude those caused by late or wrong inputs, insufficient funds or changes made after cut-off. See contract renewal and exit terms.
For the underlying obligations, see remitter types and remittance due dates and T4 slips and electronic filing. For Quebec, Revenu Québec has its own penalties and interest on source deductions.
FAQ
Is a remittance on time if I pay at the bank on the due date?
Generally yes, if a Canadian financial institution receives and processes it by the due date. Online payments can take time to reach the CRA, so pay a few business days early.
Does quarterly remitter status protect me from penalties?
No, and a late remittance or penalty can cost you quarterly status, because it requires a perfect compliance record.
Can I be penalised if my software calculated wrongly?
Yes. The CRA assesses the employer for amounts not deducted and the penalty. You may have a claim against the vendor depending on the contract.
What happens if I cannot afford to remit?
Remit what you deducted anyway, and contact the CRA early to discuss a payment arrangement. Unremitted source deductions are treated more seriously than most other tax debts, and directors can be liable.
Sources
- Canada Revenue Agency — payroll penalties and interest, information return penalties, taxpayer relief (RC4288), prescribed interest rates
- Justice Laws Website — Income Tax Act ss. 227 and 227.1 (penalties, trust, directors' liability)
- Revenu Québec — Quebec penalties on source deductions
- CPA Canada — professional commentary on CRA administrative positions
