Granted, payroll obligations are not a simple procedure and the red tape may seem overwhelming at times but it is one area that attracts close scrutiny from the Canada Revenue Agency (CRA). Essentially, you have to record and remit deductions for Canada Pension Plan (CPP), employment insurance (EI) and all federal, provincial or territorial income taxes. Any business with a business number (BN) must have a payroll program account attached to the BN.
Trying to escape CRA scrutiny by paying employees in cash, including family members, is probably the worst decision you can make, particularly if you fail to prepare and submit the proper deductions and remittances to CRA. The resulting penalties and assessments that might be imposed could be extremely costly for you personally and your business.
For instance, you may be assessed for failure to deduct and remit the following:
- the employee and employer portion of the CPP
- the employee and employer portion of EI
- and, of course, the taxes
Such omissions to report and remit could trigger a number of penalties for late remittance, failure to deduct and remit and, possibly, gross negligence. Without complete payroll records you cannot claim wages as a business expense. As well, the employee will not qualify for EI if those remittances have not been made. The employee may also be subject for interest and penalties for not reporting all or part of the cash income.
Timing of your remittance also plays a large factor in how CRA considers your payroll management performance. Generally, the specific timing of your payments could be any one of four time periods including quarterly, monthly, twice a month and four times a month. The determination of which payment period applies to your business depends on how much you withhold for remittance.
Quarterly remittance applies to companies that withhold less than $1,000 per month. You may also qualify for quarterly remittance if you withhold less than $3,000 if your account has been open for 12 months or more and as long as you have a perfect compliance record. Other thresholds of under $25,000, $100,000 or over $100,000 will slot you into one of the other three pay periods. The last amount determines the most frequent remittance period. If you have associated business, all of them must comply with the same payment periods.
If your payment is received on the next business date following your due date that falls on a weekend or a public holiday recognized by CRA, you will still be considered in compliance with your obligations. Changes to CPP effective Jan. 1, 2019 requires a CPP contribution rate increase to 5.1 percent from 4.95 percent. The rate will increase again in each of the next six years so staying on top of the new rates will be important in meeting your CRA payroll reporting requirements.