By OptiVal Editorial Desk

Payroll Penalties in Canada: What Late Remittance Actually Costs You

Most payroll penalties in Canada come from one boring mistake: sending source deductions to the CRA a few days late. There is no grace period, no courtesy call, and no small-business discount. The penalty is automatic, interest starts accruing the day after the deadline, and by the time the notice arrives you already owe it. This guide covers what the CRA charges, how the remittance schedule works, and how to never pay a dollar of it.

Payroll penalties in Canada: the actual penalty schedule

When you run payroll, you withhold income tax, CPP contributions and EI premiums from employee pay. That money is not yours. It is held in trust and must be remitted to the CRA on a fixed schedule. Miss the deadline and the CRA charges a penalty based on how late you are:

• 3% of the amount if it is 1 to 3 days late
• 5% if it is 4 or 5 days late
• 7% if it is 6 or 7 days late
• 10% if it is more than 7 days late, or if nothing is remitted at all

It gets worse for repeat offenders. On the second or later failure in a calendar year, where the failure was knowing or grossly negligent, the penalty jumps to 20%. And on top of every penalty, the CRA charges interest compounded daily at the prescribed rate, which sits at 7% for the fourth quarter of 2026. Penalties and interest on source deductions are not deductible, so you pay them with after-tax dollars.

One five-day-late remittance on a mid-five-figure payroll can cost hundreds of dollars in penalty plus interest. Do it twice and you are in the thousands. For a small business, that is real money lost for a task that takes minutes.

When your remittance is actually due

Your due date depends on your remitter type, which the CRA sets from your average monthly withholding amount (AMWA):

• Regular remitters (AMWA under $25,000): remit monthly, by the 15th of the following month. Most small businesses are here.
• Threshold 1 (AMWA $25,000 to $99,999): remit twice a month.
• Threshold 2 (AMWA $100,000 or more): remit within three business days of each pay date.

Small regular remitters with a perfect compliance record for the past 12 months and average monthly withholding under $3,000 can apply for quarterly remittance, due April 15, July 15, October 15 and January 15. It is not automatic; you have to apply to the CRA.

The dangerous part is the category change. If your payroll grows and your AMWA crosses $25,000, you move to twice-monthly remittance and the shorter deadline. Owners who do not notice the change keep remitting monthly and rack up automatic penalties on every cycle.

Why small businesses keep getting caught

In practice, the causes are almost never mysterious. The owner runs payroll themselves and the remittance depends on a calendar reminder that gets missed during a busy week. The payroll is outsourced to a bookkeeper who processes pay on time but remits late. A new hire changes the AMWA and nobody updates the remittance schedule. Or the business hits a tight cash month and the owner “borrows” the withheld amounts for a week, which the CRA treats exactly as seriously as if you had never planned to pay.

That last one deserves emphasis. Withheld deductions are trust funds. Using them as short-term working capital is the fastest way to turn a cash flow problem into a penalty problem, and the CRA pursues directors personally for unremitted source deductions.

How to never pay a payroll penalty

• Know your remitter type and your exact due date. Write it down. If your payroll is growing, check your AMWA every year so a category change does not ambush you.
• Remit the same day you run payroll. The deadline is a latest date, not a target. Paying on payroll day removes the calendar-risk entirely.
• Use CRA electronic payment. Online banking bill pay and CRA My Business Account payments are dated when you send them. Cheques in the mail are a gamble with the post office.
• Reconcile every quarter. Compare what you remitted against your payroll register so a shortfall surfaces in weeks, not at year end when you file your T4s.
• Keep one person accountable. Whether it is you, your bookkeeper or a payroll provider, someone must own the remittance calendar. Split responsibility is how deadlines get missed.

One more habit worth building: review your CPP and EI deduction amounts at the start of each year. The CRA updates the exemption, maximums and rates annually, and under-deducting all year creates a balance owing that lands on your books at once.

Already missed one? What to do now

Pay it today. Interest compounds daily from the day after the deadline, so every day you wait adds to the bill. Do not wait for the notice; the CRA does not need to remind you before the penalty applies. After paying, review why it happened: wrong date on the calendar, a category change you missed, or a process with no backup owner. If the cause was a genuine error and this is your first time, you can ask the CRA for taxpayer relief to waive or cancel the penalty and interest, though relief is discretionary and not guaranteed.

The bottom line

Payroll penalties are one of the few business expenses that are 100 percent avoidable. The schedule is published, the deadlines are fixed, and the penalties are steep enough that a single late remittance often costs more than a year of having someone else handle payroll properly.

Want payroll done right and remitted on time, every pay run? We handle payroll for Canadian small businesses starting at $29 per employee per month, plus a $149 setup. Book a free consultation and we will review your current remittance schedule for free. You can also see our full range of services and current pricing.