This article explains the 2nd benefit of preparing for year-end accounting throughout the year, which is avoiding government penalties from missed remittances such as GST, PST, Payroll, and WCB.
Year-end can be an intimidating process for business owners. There are many moving parts that must fit into place for year-end accounting to be completed, and for many this is a time-consuming process. One of the best ways to simplify this process is by preparing for year-end throughout the year rather than leaving everything until there is a looming deadline ahead. Preparing throughout the year allows business owners to be more aware of their company’s financial health throughout the year, and also means any issues that arise are addressed while they are fresh in the business owner’s mind rather than trying to remember events from up to a year ago.
Realizing something was missed is one of the most stressful events that can arise when completing year-end accounting – especially if it results in higher costs that could have otherwise been avoided. Some of these high-cost misses are government remittances such as Goods and Services Tax (GST), Provincial Sales Tax (PST), Worker’s Compensation Board (WCB), and payroll source deductions. In this article we will take a look at these 4 key remittances and the penalties that can be avoided by submitting on time.
Avoid Government Penalties
The 2nd BIG advantage of keeping in touch with an accountant throughout the year or using a bookkeeper is avoiding penalties from the government by ensuring all remittances are completed. We want to achieve goals and avoid penalties! Remittances are payments that must be calculated and sent to the government or governing body, depending on the type of remittance. If these remittances are not sent on time, there are penalties that the government can charge to the business. If a business is not in regular contact with their accountant or does not have a bookkeeper responsible for these payments, it can be very easy to miss the remittance dates and therefore incur penalties. In Canada, there are 4 key remittances we will highlight, along with the penalties that can be charged.
GST payments are made to the Canada Revenue Agency (CRA), and the due date is determined by the reporting period of the company which is predetermined and is shown at the top of Form GST34-2. The CRA will withhold any GST refunds or rebates until they have received all outstanding returns and amounts and will even withhold the personal income tax refund if the business is a sole proprietorship or partnership.
The penalties for failure to file a GST remittance include 1% of the amount owing plus 25% of that 1% times the number of months overdue, up to a maximum of 12 months. A + (BXC). For example, if a $20,000 GST return was 5 months overdue, it would be $200 + ($50 X 5) = $450. If a “Demand to File” is received and ignored, there is an extra penalty of $250. There is also a penalty for “Failure to accurately report information” which is 5% of the amount owing plus 1% per month on the difference of what was reported vs. what should have been reported to a maximum of 10%. The CRA will also charge the prescribed interest rate compounded daily on any overdue balance owing on a GST return or remittance.
In Saskatchewan, PST Returns must be filed on a monthly, quarterly, or annual basis depending on the reporting period of the company which is decided by the amount of tax reported. To avoid penalties and interest, the remittances must be completed by the due date. The return is filed to the Minister of Finance by mail or completed electronically online through Saskatchewan Electronic Tax Service (SETS). For returns filed non-electronically, they are due on the 20th day of the month following the end of their reporting period, whereas they are due on the last day of the month if filed electronically through SETS.
A penalty of 10% of the tax amount owing is applied to each return period, to a maximum of $500. Interest is also charged on the amount owing from the date the remittance was due and is the prime interest rate plus 3%.
When salary, wages, or other taxable benefits are paid, there are source deductions taken from those payments. Source deductions in Canada include Income Tax (Provincial and Federal), Canada Pension Plan (CPP), and Employment Insurance (EI). All of the source deductions must be calculated, deducted from employees’ pay, then remitted to the CRA. The remittance frequency decides the due dates for the payroll remittances, and is based on the remitter type which is decided by the average monthly withholding amount (AMWA).
There are 5 different penalties that can be assessed from the CRA, and if there is a payment due to the CRA they may apply the prescribed interest rate as well. Here are the 5 payroll penalties:
1. Inaccurate calculation or deduction
A penalty of 10% of the CPP, EI, and Income Tax amount that was not deducted can be charged. If this penalty is assessed more than once in a calendar year, the penalty can go up to 20% if the error was made knowingly or with gross negligence.
2. Late or non-payment (remittance)
This penalty automatically applies to remittances over $500, and only to those under $500 if the error was made knowingly or with gross negligence. The penalty is:
- 3% one to three days late
- 5% four or five days late
- 7% six or seven days late
- 10% more than seven days late, or if no amount is remitted
- 20% for a second or subsequent time you are assessed this penalty in a calendar year, if the failures were made knowingly or with gross negligence
3. Wrong method of payment (remittance)
This only applies to the Threshold 2 accelerated remitter type. This remitter type must remit their source deductions electronically or in person at a Canadian financial institution no later than 3 working days following the end of the period. Payments through a financial institution that are made at least 1 full day prior to the due date will not be considered late. Payments made on the due date will have a penalty of 3%, and payments made after the due date will be charged a penalty calculated at graduated rates.
4. Late filing information return
5. Wrong method of filing information return
Both #4 and #5 don’t relate specifically to payroll source deduction remittances, and are explained on the Government of Canada website.
At the beginning of each year employers must provide a payroll estimate to the WCB so they can determine the employer’s premiums. The estimation includes the maximum amount employers will pay to their employees during the year. This payroll estimate is provided to the WCB though an Employer’s Payroll Statement (EPS). Payroll estimates must be current as the premiums are due in the coverage year they are applied to. Employers can revise their payroll estimate anytime during the year to avoid an underestimate penalty which will be applied if wages are more than 50% greater than estimated wages.
There are 3 fines and penalties that can be imposed by the WCB (outside of the underestimate penalty). The list of offences and explanations of each fine/penalty are explained on the WCB website.
1. Summary conviction to a fine of not more than $1,000.
WCB decides if the offence should go to the Crown Prosecutor, have a penalty imposed, or both. Can be applied regardless of a discretionary or administrative penalty.
2. Discretionary penalty in a monetary amount ordered by the WCB.
Penalty amount is based on compensation, medical aid, or deductions as specified by the Act. Can be imposed by the WCB whether or not the employer is convicted of an offence.
3. An administrative penalty, not exceeding $10,000.
Penalty of up to $10,000 can be applied in addition to a summary conviction or discretionary penalty. These are often applied to repeat offenders and can be imposed up to 3 years after a breach of the Act was discovered.
Achieve Goals, Avoid Penalties
Woo – congratulations on making it through this in-depth explanation of the government penalties that can be imposed. While it may not be the most thrilling read, it is better to be aware of the GST, PST, payroll, and WCB remittance penalties so they can be avoided. If focused on achieving the goal of submitting these remittances on time, penalties can be dodged – which means more money on the business playing field!
Download this resource article Benefits of Preparing for Year-End Accounting Throughout the Year: Part 2 – Avoid Government Penalties (pdf).