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Top 5 Common Tax Audit Issues – Part 3

May 13, 2014

Tax Question:

Top five common Corporate Income Tax issues faced by clients: Missing Payroll Remittances


When corporations face cash flow shortages, one of the easiest short-term measures is to stop paying remittances to CRA. This is because no prior consent is required and commonly the only cost is the interest that has to be paid on the “loan” CRA has given you. However, under no circumstances ever, should you fail to remit withholding taxes on payroll. We repeat, never, never, never fail to remit withholding taxes on payroll.


When you deduct withholding taxes such as EI, CPP and income tax from payroll you are basically holding them in trust on behalf of your employees. At the end of the year, your employees will file their personal tax returns and report that they have already paid a significant part of their personal taxes owing through their employer. Because this money does not belong to the corporation, using it to pay for business expenses instead of remitting it to CRA is viewed as a serious offence. Think of it as stealing from your employees.

CRA is very aggressive when they are aware a company has failed to remit payroll withholding taxes. They will act very quickly to collect the taxes. This can involve garnishing income sources such as customer receivables, seizing and selling assets, extracting money from the company bank account and chasing the directors of the company personally for the unpaid amounts. In addition, they will assess penalties on top of the taxes owing. CRA is a lot less willing to reach a payment plan for payroll withholding taxes than they are for other taxes such as GST or corporate tax. To help ensure you always have sufficient cash to meet payroll remittances we suggest the following:

  • Prepare a cash flow budget so that you know when the biggest demands on the bank account will be. This will allow you to postpone payments or other purchases ensuring you have sufficient cash resources at payroll time.
  • Utilize other finance sources such as credit cards to pay for non-payroll items such as assets and supplies. This then frees up cash in your bank account.
  • Hire the services of a payroll company such as ADP or Ceridian as they will automatically pull the money out of your bank account and calculate all your tax withholdings. You may actually save time in the long run.
  • If you are short of cash, as an owner-manager you could defer your own salary. Still pay the remittances but leave the net pay in the shareholder loan account to be taken at a later date when the company has sufficient cash.
  • Set aside an amount of money received from customers equal to the remittances owed into a separate bank account that is only used for payroll. That way you are forcing yourself to save the necessary remittances and do not have to find the money from other sources.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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