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Chapter

2

Federal Remittances and Reconciliations

Learning Objectives: Upon completion of this chapter, you should be able to: 1. differentiate between monies held in trust and operating capital 2. apply statutory remittance schedules 3. calculate statutory remittances o Canada Pension Plan o Employment Insurance o Federal and non-Québec provincial income taxes 4. reconcile the Canada Revenue Agency account

Communication Objective: Upon completion of this chapter, you should be able to explain the financial and legal consequences of non-compliance with statutory remittance requirements.

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Chapter 2 Federal Remittances and Reconciliations

Chapter Contents Introduction ........................................................................................................................ 2-4 Remittance Responsibilities ............................................................................................... 2-4 In Trust ........................................................................................................................... 2-4 Remitter Type ................................................................................................................ 2-5 Remittance Schedule ...................................................................................................... 2-5 Content Review ............................................................................................................ 2-19 Review Questions ........................................................................................................ 2-20 Remittance Calculations .................................................................................................. 2-22 Content Review ............................................................................................................ 2-24 Review Questions ........................................................................................................ 2-25 Reconciling the Canada Revenue Agency Account ........................................................ 2-26 Content Review ............................................................................................................ 2-28 Review Questions ........................................................................................................ 2-29 Chapter Review Questions and Answers ......................................................................... 2-30

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Chapter 2 Federal Remittances and Reconciliations

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Chapter 2 Federal Remittances and Reconciliations

Introduction The Payroll Compliance Legislation course provides information on when to withhold, and how to calculate, the statutory deductions for Canada Pension Plan contributions, Employment Insurance premiums and federal and non-Québec provincial income taxes. This chapter focuses on the remittance of these statutory deductions, along with the employer portion, to the Canada Revenue Agency (CRA). This material discusses the concept of monies held in trust, the required remittance reporting forms, remitter types, remittance schedules, the calculation of the remittance amount and source deduction account reconciliations. The statutory deductions withheld from employees’ pays, along with any employer portion, must be held in trust for the Receiver General until the remittance is made. The remittance, payable to the Receiver General for Canada, must be calculated accurately, accompanied by the correct reporting form and received by the Canada Revenue Agency on or before the established due date, according to schedule. A periodic reconciliation of the source deduction account is necessary to ensure that all deductions and employer portions have been remitted to the Receiver General accurately and on time, keeping in compliance with legislation.

Remittance Responsibilities Employers are responsible for registering and maintaining a payroll program account with the Canada Revenue Agency. The employer will remit the statutory deductions withheld from the employees’ remuneration for Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and federal and non-Québec provincial income taxes, along with the employer portions of CPP and EI to this account.

In Trust Statutory deductions are deemed to be held in trust for the Receiver General for Canada. This means the amounts withheld from employees, along with the employer’s portion, must be kept separate from the operating funds of the business and cannot be part of an estate in liquidation, assignment, receivership, or bankruptcy. Employers who make their own government remittances, as opposed to having them remitted by a service provider, must separate all CPP contributions, EI premiums and income tax withholdings, along with any employer portion, from the organization’s regular bank account. All statutory deductions and contributions must be held in a separate payroll account until the remittance is made to the Receiver General.

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Chapter 2 Federal Remittances and Reconciliations

Remitter Type An organization’s remittance frequency depends on its average monthly withholding amount for the second preceding calendar year. For example, the withholding amount for 2020 will depend on the employer’s average monthly withholding amount made in 2018. Employers may apply to the Canada Revenue Agency to have their average monthly withholding amount for the current or previous year used instead of the second preceding year. This would be advantageous if the employer’s payroll for the previous year was lower than the payroll for the second preceding year. Note: The average monthly withholding amount is based on the total withholding amount of all associated corporations as defined by the Income Tax Act. There are four remitter types as shown in the following chart: Exhibit 2-1

REMITTER TYPE Quarterly

DEFINITION For new employers who have a monthly remittance of less than $1,000.00, perfect compliance history for their payroll and GST/HST tax obligations and who have been notified that they qualify for quarterly remitting For employers whose average monthly withholding amount is less than $3,000.00

Regular

For employers whose average monthly withholding amount is from $3,000.00 to $24,999.99, and for new employers who have not been notified by the CRA that they qualify for quarterly remitting

Accelerated threshold 1

For employers whose average monthly withholding amount is from $25,000.00 to $99,999.99 For employers whose average monthly withholding amount is $100,000.00 or more

Accelerated threshold 2

Remittance Schedule Once an employer has been advised by the CRA what type of remitter they are, a schedule, based on that type, is used to determine when the remittances are due to the CRA. The payment for the first three types of remitters – quarterly, regular, and accelerated threshold 1 – is due by a specified date based on the payroll cheque/deposit date. The remittance for accelerated threshold 2 remitters is due three business days after the end of the weekly period, established by the CRA, in which the payroll cheque/deposit date falls.

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Chapter 2 Federal Remittances and Reconciliations In all cases, the payroll cheque/deposit date is the date when the money is paid to the employee or directly deposited in their bank account. The period end date, the payroll processing date and the date the pay statement is handed to the employee are all irrelevant in determining the remittance date. The remittance schedule for the four types of remitters is as follows: Exhibit 2-2

REMITTER TYPE Quarterly

Regular Accelerated threshold 1 Accelerated threshold 2

PAYROLL CHEQUE/DEPOSIT DATES January 1 – March 31 April 1 – June 30 July 1 – September 30 October 1 – December 31 1st of the month to the end of the month 1st to 15th of the month 16th to end of the month 1st to 7th of the month 8th to 14th of the month 15th to 21st of the month 22nd to end of the month

REMITTANCE IS DUE NO LATER THAN... April 15 July 15 October 15 January 15 The 15th of the following month The 25th of the same month The 10th of the following month 3 business days from the last day of each weekly period

Note: If the remittance due date falls on a Saturday, Sunday or statutory/general/public or bank holiday recognized by the CRA, the remittance is due on the next business day. Example: Regular remitter: 

The remittance for all remuneration paid during the month is due no later than the 15th of the following month

Employees are paid semi-monthly with cheques/deposits dated the 15th and the end of the month. The statutory deductions withheld from the pay cheques/deposits dated the 15th and the 31st of May, along with the employer’s portion of CPP contributions and EI premiums, are due to the CRA by June 15th (presuming June 15th is not a Saturday, Sunday or a statutory/bank holiday).

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Chapter 2 Federal Remittances and Reconciliations Example: Accelerated threshold 1 remitter:  

The remittance for remuneration paid from the 1st to the 15th of the month is due on the 25th of the month The remittance for remuneration paid from the 16th to the end of the month is due on the 10th of the following month

Employees are paid semi-monthly with cheques/deposits dated the 15th and the end of the month. The statutory deductions withheld from the cheque/deposit dated May 15th, along with the employer’s portions of CPP contributions and EI premiums, are due to the CRA by May 25th (presuming May 25th is not a Saturday, Sunday or a statutory/bank holiday). The statutory deductions withheld from the cheque/deposit dated May 31st, along with the employer’s portion of CPP contributions and EI premiums, are due to the CRA by June 10th (presuming June 10th is not a Saturday, Sunday or a statutory/bank holiday). Using the ‘current’ year calendar provided in this material, June 10th falls on a Sunday. In this situation the remittance would be due on June 11th, the next business day.

Example: Accelerated threshold 2 remitter: 

The remittances are due three business days after the end of each weekly period: 1st to 7th of the month 8th to 14th of the month 15th to 21st of the month 22nd to the end of the month

Employees are paid bi-weekly with cheques/deposits for May dated the 11th and the 25th. The statutory deductions withheld from the cheque/deposit dated May 11th, along with the employer’s portions of CPP contributions and EI premiums, are due to the CRA by May 17th, three business days after the end of the weekly period, May 14th (presuming May 15th, 16th and/or 17th are not Saturday, Sunday or a statutory/bank holiday). The statutory deductions withheld from the cheque/deposit dated May 25th, along with the employer’s portions of CPP contributions and EI premiums, are due to the CRA by June 3rd, three business days after the end of the weekly period, May 31st (presuming June 1st, 2nd and/or 3rd are not Saturday, Sunday or a statutory/bank holiday). Using the ‘current’ year calendar provided in this material, June 2nd and 3rd fall on a Saturday and Sunday. In this situation the remittance would be due on June 5th, three business days after the end of the weekly period, May 31st.

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Chapter 2 Federal Remittances and Reconciliations Accelerated threshold 1 and threshold 2 remitters who have a monthly payroll are considered by the CRA to be monthly accelerated remitters. The average monthly withholding amount for the second previous taxation year will determine whether these organizations use the remittance schedule for an accelerated threshold 1 or threshold 2 remitter; they do not follow the regular remitter schedule. The payroll cheque/deposit date will determine the due date. Example: Monthly accelerated remitter – average monthly withholding amount between $25,000.00 and $99,999.99 – follows the accelerated threshold 1 remittance schedule:  

The remittance for remuneration paid from the 1st to the 15th of the month is due on the 25th of the month The remittance for remuneration paid from the 16th to the end of the month is due on the 10th of the following month

Employees are paid once a month on the 15th of every month. The statutory deductions withheld from the cheque/deposit dated May 15th, along with the employer’s portions of CPP contributions and EI premiums, are due to the CRA by May 25th (presuming May 25th is not a Saturday, Sunday or a statutory/bank holiday). Monthly accelerated remitter – average monthly withholding amount over $100,000.00 – follows the accelerated threshold 2 remittance schedule: 

The remittances are due three business days after the end of each weekly period: 1st to 7th of the month 8th to 14th of the month 15th to 21st of the month 22nd to the end of the month

Employees are paid once a month with the cheque/deposit for May dated the 15th. The statutory deductions withheld from the cheque/deposit dated May 15th, along with the employer’s portions of CPP contributions and EI premiums, are due to the CRA by May 24th, three business days after the end of the weekly period, May 21st (presuming May 22nd, 23rd and/or 24th are not a Saturday, Sunday or a statutory/bank holiday).

Statutory deductions withheld from manual cheques issued outside of the normal payroll cycle must also be taken into consideration in determining the remittance amount for the due date as defined above. The date of the manual cheque determines the remittance period for the statutory deductions withheld. In other words, if a manual cheque is issued on the 12th of the month and the employer is an accelerated threshold 1 remitter type, the remittance due date is the 25th of the same month.

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Chapter 2 Federal Remittances and Reconciliations Special attention is required at year-end when processing any manual cheques issued in the month of December. Remittances to the federal government for any CPP contributions, EI premiums, and federal and non-Québec provincial income tax deductions on the manual cheque, including any employer portions, must be received by the CRA by the regular due date for that remittance period. Example: Loges Entertainment is paying bonus payments to their employees after the last bi-weekly payroll for December has been processed. Loges is a regular remitter whose payroll remittances are made by their payroll service provider; their December remittance is due by January 15th. The payroll service provider will make the remittance for the December payrolls processed through their system. However the payroll service provider will not remit the withholdings on the manual cheques issued after the last payroll for the year has been processed. Loges is responsible for remitting the statutory deductions withheld on the bonus payments, along with their portions for CPP contributions and EI premiums, by the December remittance due date of January 15th.

Penalties and Interest Charges The CRA may assess a penalty of up to 10% of the required amount of CPP contributions, EI premiums and income taxes due for late remittances (20% on the second and later occurrences). An employer who withholds the statutory deductions but does not remit them, or fails to deduct the required deductions will be subject to a 10% penalty for the first occurrence on the amount that should have been deducted and remitted (20% on the second and later occurrences). The penalties for late remittances are as follows: 

3% if payment is late 3 business days or less



5% if payment is late 4 or 5 business days



7% if payment is late 6 or 7 business days



10% if payment is 8 or more business days late

Normally the penalty is only applied to the part of the amount that the employer fails to remit that is more than $500.00, however the CRA may apply the penalty to the total amount if the failure to remit, or the late remittance, was made knowingly or under circumstances of gross negligence. Again, special attention is required at the end of the year if producing any manual cheques after the final pay period for the year has been processed.

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Chapter 2 Federal Remittances and Reconciliations Example: If you are an accelerated threshold 2 employer, your last remittance for the taxation year is due three business days after December 31st. Any payment made after this date is considered a late remittance.

The CRA also charges interest, compounded daily, on any unpaid remittances and unpaid penalties from the day the payment was due. The interest rate is determined every three months, in accordance with the prescribed interest rates, and is available on CRA’s website. Failure to comply with the withholding, remitting, and reporting requirements may result in prosecution. Fines from $1,000.00 up to $25,000.00, or imprisonment for a term of up to 12 months may also be imposed.

Remittance forms The remittance forms for the statutory deductions for CPP contributions, EI premiums and income tax, along with any employer portion, are as follows: 

Statement of Account for Current Source Deductions PD7A, for regular and quarterly remitters



Statement of Account for Current Source Deductions PD7A(TM), for accelerated threshold 1 and 2 remitters



Remittance Voucher for Current Source Deductions PD7A-RB, a booklet of PD7ARB forms that is sent to accelerated threshold 1 and 2 remitters each December for the next year’s remittances

If an organization remits electronically for six months in a row or its first remittance on the account is made electronically, the CRA will stop sending paper statements of account and remittance vouchers. These organizations can view their statements and transactions online through My Business Account or contact the CRA to resume receiving paper statements and vouchers. Forms PD7A and PD7A(TM) Forms PD7A and PD7A(TM) are statements of account and current source deductions remittance vouchers. The PD7A form is for regular and quarterly remitters and the PD7A(TM) form is for accelerated remitters. The PD7A(TM) is sent in April, July, October and January for the previous quarter’s transactions. The information sections on the PD7A and PD7A(TM) are similar. An explanation of the sections is provided below; a sample PD7A page 1 follows.

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Chapter 2 Federal Remittances and Reconciliations Exhibit 2-3

PAGE 1 Top left Statement details Centre of form Bottom of form PAGE 2 Account Summary

The organization’s name and address is shown. The organization’s payroll account number and the date the form was issued is shown on the top right. General information is provided The organization’s current year remittance account balance is shown in the box at the bottom of the form This section details the transactions posted since the last statement:  remittance account balances – shows paid and unpaid amounts for the year a...