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Failing to deduct, and failing to remit

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These are two separate failures, and an employer who has committed one has often not committed the other. Failing to deduct means the money never came off the employee's pay; failing to remit means it came off and never reached CRA. They attract different consequences, they are corrected differently, and only the second involves money that was never the employer's to hold. The consequences here are among the most severe in the tax system, and they escalate with lateness and with repetition rather than with the size of the error. This tutorial separates the two failures, sets out what attaches to each, and covers what relief exists and what it does not reach.

How to work through this tutorial

This separates two things employers, and agents, routinely run together: 1. Learn why failing to deduct and failing to remit are different failures. 2. Learn what attaches to a failure to deduct, and why income tax differs from CPP and EI. 3. Learn what attaches to a failure to remit, and how the penalty escalates. 4. Understand when a remittance is treated as made, which decides lateness. 5. Learn the difference between remitting late and remitting to the wrong place. 6. Learn what relief exists, how it is requested, and what it does not cover. 7. Work through an example of a payment that was one day late. 8. Check your work against the common errors. 9. Verify every specific against CRA's published guidance before relying on it.

Two failures, not one

An employer has two distinct duties, and they fail independently. **Deducting** is taking the right amounts off the employee's pay at the time of payment. An employer who pays an employee gross has failed to deduct. **Remitting** is sending those amounts, plus the employer's own share of CPP and EI, to CRA by the due date. An employer who deducted correctly and then did not pay it over has failed to remit. All four combinations occur. An employer can deduct correctly and remit late. An employer can fail to deduct anything and, having nothing in hand, remit nothing. An employer can deduct correctly, remit on time, and still be wrong because the deduction itself was calculated on the wrong earnings. Establishing which failure is in front of you is the first thing to do on a call, because the answers diverge immediately. The question that separates them is simple: did the money come off the employee's pay? The second failure is the graver one, and the reason is not the amount. Money deducted from an employee's pay was never the employer's. That is the subject of the next tutorial, and it is what makes this area behave unlike other tax debts.

Failing to deduct

Where an employer did not withhold what they should have, the amounts do not simply transfer to the employee. The employer is liable for them. The treatment then splits, and the split matters more than employers expect. **Income tax.** The employee's own liability for their tax is unaffected — they will report the income and pay the tax when they file. So an employer who under-withheld income tax has a compliance failure, and a penalty can attach to it, but the tax itself is generally accounted for on the employee's return rather than collected twice. **CPP and EI.** These are different. The employer is liable for the amounts that should have been withheld, and that liability includes **the employee's portion as well as the employer's**. The employer's ability to recover the employee's portion from the employee's later pay is limited by CRA's rules — there are restrictions on how much can be recovered, and over what period. An error found the following February may not be recoverable at all. So the practical shape of a failure to deduct is that the employer ends up paying the employee's share of CPP and EI out of its own funds, on top of its own. That is why the benefits sweep at level 2 matters so much: an unnoticed taxable benefit is a failure to deduct running for a whole year, on every affected employee at once. A penalty for failing to deduct is set out in CRA's guidance and is expressed as a percentage of the amount that should have been deducted, with a higher rate where the failure is repeated in the same year and made knowingly or through gross negligence. Do not quote the rates from memory.

Failing to remit

Where amounts were deducted, or should have been, and did not reach CRA on time, a penalty applies to the amount remitted late, and interest runs on the outstanding balance. The structure of the penalty is what an agent needs to hold, more than the figures. It is **graduated by how late the payment is**, rising through bands as the delay lengthens. A payment a few days late and a payment months late are not treated alike. There is a **higher penalty for a repeat failure** in the same calendar year, where the failure was made knowingly or in circumstances amounting to gross negligence. An employer who has already been penalised once in the year and does it again is in a different category. And it applies **per remittance**, not to the year as a whole. An employer who was late every month has as many penalties as there were late remittances. Interest is separate from the penalty, compounds daily, and runs from the day after the amount was due until it is paid. The interaction with the level 2 material is worth stating: an employer whose annual reconciliation shows they withheld more than they remitted has, by definition, an unremitted balance. The reconciliation does not create the failure; it discovers it, often many months after the fact, with penalty and interest already accumulated.

When a remittance is treated as made

Lateness is decided by when CRA is treated as having received the payment, not by when the employer initiated it, and this catches employers out on the last permissible day. A payment made through a financial institution or an electronic service is generally treated as received on the day the institution or CRA receives it. Processing time between an employer clicking send and CRA receiving the money is the employer's risk. A remittance mailed is subject to its own rule, and an employer relying on the post to meet a due date is taking a risk that does not need taking. Where a due date falls on a weekend or a public holiday, the ordinary next-business-day treatment generally applies — but confirm it rather than assuming, because it is exactly the assumption an employer makes when they are already one day out. The consequence is that the useful advice is never "pay by the due date". It is: initiate the payment early enough that it is received by the due date, and use a method whose timing you can rely on.

Late, versus in the wrong place

These look identical on the employer's account and they are not the same problem. A **late remittance** means the money was not there when it should have been. Penalty and interest are properly due, and the argument available to the employer is relief, not correction. A **misapplied remittance** means the money was paid on time and posted somewhere else — the wrong program account, the wrong reference number, the wrong period, or another business the same person operates. The obligation was met; the accounting was not. The fix is a transfer of the credit, and where the payment was genuinely made on time, the penalty and interest that accrued should not stand once it is applied correctly. So the order of work on a call is: establish whether the money exists somewhere in CRA's records before discussing penalties at all. An agent who opens with relief on a misapplied payment has skipped the step that would have made relief unnecessary. The employer's own records are not evidence either way about which of these happened, because a payment made and misdirected looks exactly like a payment made and received from the employer's side. That is the point of the level 2 example.

What relief exists

Two routes, addressing different situations, and neither one erases the underlying amounts. **Taxpayer relief.** CRA may cancel or waive penalties and interest in defined circumstances — broadly, situations beyond the taxpayer's control, actions of the department, and inability to pay or financial hardship. It is discretionary, it is requested on a prescribed form, and there is a limitation period on how far back a request can reach. It does not touch the tax, the CPP or the EI themselves; those remain owing. **The Voluntary Disclosures Program.** Where an employer comes forward about a failure CRA does not yet know about, the programme may provide relief from penalties and some interest, and in some cases from prosecution. Its conditions are specific and it is unavailable once CRA has begun compliance action on the matter. The programme has been revised, so an understanding formed a few years ago may be out of date. Both routes share a shape worth conveying plainly: they may reduce the cost of the failure, and they never make the amounts go away. An employer hoping to have the remittance itself forgiven has misunderstood what is on offer. And the sequence matters for the second route especially. Coming forward before CRA asks is materially better than answering after it has.

A worked example: one day late, twice

Teaching example. The figures below are invented to show the method. They are not CRA figures, and no amount here should be used for a real taxpayer.

The figures in this example are invented for teaching. They are not real penalty rates or thresholds, and nothing here should be used to check a real assessment. Suppose Halvorsen Cabinetry remits monthly. In March its bookkeeper initiates the remittance — say $14,700 — through online banking on the due date itself, in the evening. The bank processes it the following business day. CRA receives it one day late. A penalty applies. The employer is genuinely bewildered: they paid on the due date, and their bank statement says so. The answer is that the bank statement records when they initiated it, and the rule looks to when it was received. Suppose they do the same thing in July, after being told about the March penalty. The second failure is where the picture changes shape, because a repeat in the same calendar year, where the employer already knew, can attract the higher penalty rather than the ordinary graduated one. The amount is not much larger; the category is. Now suppose a third case. In September the payment is initiated a week early and CRA has no record of it. It turns out to have been directed to the corporation's GST/HST account. The money was on time and in the wrong place — not a late remittance at all, and the route is a transfer of the credit, not a relief request. Three events that all present the same way on the account: "I have a penalty and I paid." The work on the call is to find out which of the three is in front of you before saying anything about the penalty.

Common errors

Treating failing to deduct and failing to remit as the same failure. Ask whether the money came off the employee's pay. Telling an employer that unwithheld amounts become the employee's problem. For CPP and EI the employer is liable for the employee's portion too. Assuming the employee portion can always be recovered from later pay. Recovery is limited in amount and in time. Quoting penalty rates or bands from memory. They are published, graduated, and precisely what the employer will act on. Treating the repeat penalty as automatic on a second lateness. It carries conditions about knowledge and gross negligence. Treating a penalty as applying to the year rather than per remittance. Telling an employer they paid on time because they initiated the payment on the due date. Receipt decides it. Discussing relief before establishing whether the money is sitting misapplied somewhere in CRA's records. Describing taxpayer relief or a voluntary disclosure as cancelling the amounts owing. Neither touches the underlying deductions. Advising a voluntary disclosure without checking whether CRA has already begun compliance action. That closes the route. Assuming a relief request can reach back indefinitely. There is a limitation period.

What to verify this tutorial against

This was drafted without a source document. Penalty rates, bands, the repeat-failure conditions and the relief limitation periods are all published, and every one is the kind of specific to take from the page. CRA's employers' guide to payroll deductions and remittances is the primary reference for both failures, the penalty structure for late remitting, the penalty for failing to deduct, and the rules on recovering an employee portion. Confirm the guide's current number and title. CRA's pages on payroll penalties and interest carry the graduated bands, the higher rate for a repeat failure and the conditions attaching to it, and how interest is computed. Take every figure from there. CRA's guidance on when a payment is considered received sets out the treatment for financial institution payments, electronic payments and mailed remittances, and the weekend and holiday rule. CRA's taxpayer relief provisions guidance sets out the grounds, the prescribed form and the limitation period on how far back a request may reach. CRA's Voluntary Disclosures Program guidance sets out the conditions, the tracks available, and the point at which the programme becomes unavailable. It has been revised; take the current position. This line's tutorial on amounts held in trust is the reference for why an unremitted deduction is treated differently from other debts, and the two should be kept consistent. The level 2 tutorials on calculating deductions and on year end are the references for the mid-year correction routes referred to here.

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