The Canada Revenue Agency is serious about source deductions. The late payment penalties are severe, and if you or your clients remit the wrong amount, it’s important to know how to correct these errors. Source deductions consist of Employment Insurance premiums, Canada Pension Plan contributions, and income taxes withheld from employee’s paycheques as well as the employer amounts for EI and CPP.
If you remit too much money, reduce the next remittance amount accordingly. If the over-remittance is from a previous tax year, request a refund online using the CRA’s Represent a Client service, or instruct your client to request a refund using My Business Account. You can also request a refund through the mail by attaching a note with your client’s information return or T4 slips.
If you realize you or a client has remitted less than the amount due, you need to take care of those errors quickly. The CRA charges a 3% late penalty if you’re a day late, a 5% penalty for being four or five days late, a 7% penalty for being six or seven days late, and a 10% penalty for being more than a week late. Your clients generally only face these penalties if the unpaid amount is over $500, but if they’re late more than once in a calendar year, the penalty increases to 20%.
To pay the outstanding amount, use the CRA’s online payment portal in My Business Account, make a payment at your financial institution, or use a third-party service provider to make a payment with a credit or debit card. Typically, the CRA credits payments made through financial institutions the fastest, so that’s the best option for minimizing late payment penalties.
Everyone makes mistakes, and that applies to remitting source deductions. If you or a client overpays, it’s easy to arrange a credit or refund from the CRA. If you underpay, make a payment as quickly as possible to correct the error and avoid penalties.