Payroll Success Story
We were approached by a U.S based company (xyz) who is selling their industrial products in Canada. They have one employee in Toronto who does their web marketing.
In year 2017 this employee made Can $105,000
An employer in Canada is required to deduct income tax, employment insurance and Canada pension plan, match EI at the rate of 1.4 and CPP dollar per dollar and remit this amount to CRA. All remittance are supposed to be made before the 15th of following month. So if an employee is to be paid for January his withholding must be remitted to CRA before 15th of February.
Employer must have a payroll account with CRA and these remittances are made towards that payroll account. At the end of the year employer is required to generate T4 slips for its employees and also create a T4 summary that needs to be submitted to CRA. Copies of the T4 slips are submitted to CRA along with T4 summary and each employee also gets a copy of the T4 summary based on which he files his income tax.
Based on gross $105,000 for the year 2017, employees gross per month = $8,750.00, Income tax deduction = $2,241.37, CPP deduction = $69.68, E.I deduction = $213.68 and employee’s net pay = $6,225.27
Based on monthly gross of $8,750 and matching CPP and employer portion E.I, employer should have remitted $2,835.96 to CRA each month. A total of $34,051.52 for the whole year to CRA.
XYZ was not aware of this process and kept on paying $8,750.00 per month to its employee thinking that employee will make the deductions and pay to CRA.
Onus is on the employer to make the deductions, match CPP and E.I and remit to CRA.
We explained this process to XYZ and filed T4 summary with CRA on its behalf.
XYZ informed us that they will pay $3,734.78 (Employer portion) to CRA and their employee will pay $30,296.74 to CRA as they made this agreement between themselves.
Both the parties’ i.e employee and employer made payments to CRA. However, employee ended up making the payment towards his personal account instead of making it towards payroll account of his employer. Early March of 2017, XYZ received a notice of assessment from CRA that demanded $30,296.74 + huge penalties for failure to remit deductions.
We immediately had XYZ sign an RC59 and its employee sign T1013 which are authorizations for business and individual respectively and talked to CRA and explained them the whole situation.
Conclusion:
CRA moved all funds from employee’s personal account to employer’s payroll account, made all necessary adjustments and waived all interest and penalties considering it as to be an honest error.
To know more visit “The Accounting and Tax”