Catch-up
Payroll deductions were not remitted for years. What is the penalty?
2026-10-11 · 6 min read · Tax Everyday, Vaughan
Income tax, CPP, and EI withheld from employees and not remitted are trust funds. The penalty for remitting them late is graduated by the number of days, not by a single flat rate. It is 3% if the amount is one to three days late, 5% if it is four or five days late, 7% if it is six or seven days late, and 10% if it is more than seven days late. If the failure was made knowingly or under circumstances amounting to gross negligence, the penalty is 20% of the amount not remitted. Interest is charged as well. Do not invent a different percentage from an old payroll blog.
A director can be personally assessed for source deductions the company does not remit, under section 227.1, with a due-diligence defence and generally a two-year limit after the person stops being a director. Employees are still credited with the deductions you withheld. “We never sent it, so the employees can sort it out” is not how payroll works.
Years of missed remittances are a reconstruction
The penalty is the smaller part of the conversation if the T4s were never filed and the amounts withheld were never recorded. You may have to rebuild each pay run.
- List every person paid, including a shareholder who was on payroll.
- Separate wages, the tax withheld, CPP, and EI. A net payment with no breakdown cannot be remitted correctly.
- Match that to the RP account. If you paid people and never opened a payroll account, the account still has to exist.
- File the T4s and the T4 summary for each calendar year. Remitting without information returns leaves the employees unmatched.
- A shareholder who took cash and called it payroll after the fact needs a real pay structure, not a December label.
This is quoted work
Payroll catch-up is not included in the $90 personal return and it is not silently included in a vague bookkeeping line. Tax Everyday quotes it from the number of pay periods and the state of the records. If the company also needs T2s, a ready corporate year is $2,000 plus HST, and the payroll reconstruction is identified separately so you can see it.
Drop one sample pay stub and the list of people if that is all you have. Do not send a payment to an unknown CRA account “to show good faith” until the amounts are tied to a period.
Short answers
We paid everyone as contractors. Does payroll still apply?+
Only if they were actually employees. A label on an invoice does not decide it. If CRA later decides they were employees, the source deductions, CPP, and EI can be assessed anyway. Bring the facts of how they worked, not the word you used.
Is the 10% penalty capped?+
The 10% is the rate once you are more than seven days late. It is not a 12-month income-tax-style cap. The 20% rate is for knowing or grossly negligent failures. Interest is additional.
Want this applied to your file?
These notes are general. A return is prepared only after we see your slips.