Late payroll remittances are the arrears that catch owner-managed businesses hardest, and it is rarely because the business is failing. It is usually a cash-timing problem that got repeated. The penalty structure is what turns a timing problem into a serious one.
Key takeaways
- The penalty runs 3%, 5%, 7% and 10% depending on how late the remittance is.
- A repeat penalty in the same calendar year can reach 20% where the failure was knowing or grossly negligent.
- It applies to amounts over $500 deducted and not sent, or sent late.
- The penalty is charged on the remittance, not on profit, so it lands the same in a bad month as a good one.
- Payroll debt has a six year collections limitation period, shorter than the ten years for income tax, but the CRA moves on it faster.
The penalty ladder
| How late | Penalty |
|---|---|
| 1 to 3 days | 3% |
| 4 or 5 days | 5% |
| 6 or 7 days | 7% |
| More than 7 days, or not remitted at all | 10% |
| Second or later in the same calendar year, knowing or grossly negligent | 20% |
The CRA charges this where you deducted more than $500 and did not send it, or sent it late. Below $500 the penalty applies only where the failure was made knowingly or through gross negligence.
Read the ladder again with a cash-flow eye. Three days late costs 3%. Eight days late costs 10%. On a $20,000 remittance that gap is $1,400 for five days, which is a far more expensive way to borrow than almost anything a bank would sell you.
Why the CRA treats this differently
Corporate tax is a debt on your own profits. Source deductions are money withheld from your employees and held on their behalf. The CRA does not regard those as the same kind of obligation, and that difference shows up in how quickly collections moves. A business can have an unremarkable corporate tax account and still be in serious trouble on payroll.
How long the CRA can collect
| Type of debt | When the period starts | Length |
|---|---|---|
| Payroll debt | The day after a notice of assessment or reassessment is sent | 6 years |
| Individual and corporate tax | The 91st day after the notice is sent | 10 years |
| Employment insurance overpayment | The day the overpayment happens | 6 years |
| CPP and OAS | No limitation period | None |
Treat the limitation period as context rather than a plan. Certain events restart it and others pause it, so waiting it out is not a strategy, and the collection activity in the meantime is the part that actually affects the business.
Getting back in front of it
The durable fix sits upstream of the CRA. Remittances fail when the money is in the operating account and gets spent before the due date, so the answer is structural: payroll run on a schedule with the remittance set aside as it is calculated, and bookkeeping current enough that you know the number before the date rather than after it. Where arrears have already built up, that runs in parallel with dealing with the collections side.
Common questions
What is the penalty for remitting payroll deductions late?
The CRA charges 3% if the amount is 1 to 3 days late, 5% at 4 or 5 days, 7% at 6 or 7 days, and 10% if it is more than 7 days late or is not remitted at all. A second or later penalty in the same calendar year carries 20% where the failure was made knowingly or through gross negligence.
Is there a threshold before the penalty applies?
The penalty applies where you deducted more than $500 and did not send it, or sent it late. Under $500 it applies only where the failure was knowing or grossly negligent.
Why is payroll debt treated more seriously than corporate tax?
Because it is not your money. Source deductions are amounts withheld from employees and held on their behalf. That difference drives how urgently the CRA pursues it.
How long can the CRA collect a payroll debt?
Payroll debt carries a six year collections limitation period, starting the day after a notice of assessment or reassessment is sent. Individual and corporate tax runs ten years, starting the 91st day after the notice. The period can restart or be extended by certain events, so it is not a fixed countdown.
The penalty is on the remittance, not the profit. Does that matter?
It matters a great deal. A 10% penalty applies to the amount that should have been remitted, regardless of whether the business made money that month, which is why payroll arrears escalate faster than owners expect.
If payroll arrears have built up
We work with owners on both halves: the arrears already assessed, and the remittance process that produced them.
Sources: CRA, Late remitting and failure to remit, How long a debt can be collected by the CRA. General information only, not advice for your situation.