2017-03-01 00:00:00 Bookkeeping English Learn why using a separate bank account for amounts deemed held in trust is a safeguard against penalties and interest. https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/06/Business-Owners-Should-Separate-Accounts-For-Amounts-Held-In-Trust.jpg https://quickbooks.intuit.com/ca/resources/bookkeeping/using-separate-accounts-amounts-held-trust/ Using Separate Accounts for Amounts Held in Trust

Using Separate Accounts for Amounts Held in Trust

1 min read

Small businesses must withhold certain amounts from employees’ paychecks for Employment Insurance premiums, Canada Pension Plan contributions, and other payroll taxes. Similarly, they must collect and eventually remit the GST/HST on their sales. By law, all of these amounts are deemed to be held in trust for the government; the money does not belong to the business. Failing to remit these amounts on time has serious consequences.

All of the applicable laws have harsh penalties, and interest is charged on the unremitted amounts. If the business is incorporated, the directors can be held personally liable to the government for the repayment. A good way to safeguard against a cash flow crunch when the time comes to remit the amounts is simply to use a separate bank account. On an ongoing basis, when you collect GST/HST or pay your employees’ salaries, take the amount out of your business’s current account and place in a separate one that is used only for this purpose.

That way, when payment time comes, you will be certain that the money is available. Additionally, if there is still a problem perhaps due to a miscalculation you may be able to avoid penalties and directors’ liability with this method, since you can show that you acted with due diligence.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

How to Set up Contra Accounts

Are you looking for a way to account for accumulated depreciation, returned…

Read more

What are Business Accounts?

A business account is a bank account for a small business. Like…

Read more

What is an Accounting Ledger?

Accounting ledgers are an essential aspect of small business bookkeeping. As a…

Read more