Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: What is the exposure to the failure to withhold and remit penalties to a third party payroll service bureau?
Position: Depends on the facts of the particular situation. However, likely no exposure.
Reasons: The payroll in the contemplated situation is actually being paid by the employer.
XXXXXXXXXX 2000-006163
J. E. Grisé
January 18, 2001
Dear XXXXXXXXXX:
Re: Payroll Service Bureau
This is in reply to your letter of December 7, 2000, requesting a written interpretation pertaining to the potential source deductions liabilities of a payroll service bureau.
The payroll service bureau would typically remit employer source deductions by:
- initiating, via the electronic services provided by a financial institution, a debit against the employer's bank account and a credit to that of the Canada Customs and Revenue Agency (the CCRA) for the source deductions concerned, and
- initiating a debit against the employer's bank account for the amount of net pay owing to employees and then initiating a credit to employees, known as a direct deposit.
Written opinions with respect to proposed transactions or to the facts of a particular transaction which is related to specific taxpayers are only given in the context of an advance income tax ruling pursuant to the guidelines in information Circular 70-6R3. A copy of the Circular is enclosed for your purposes. Should you require guidance with respect to an actual business, please consult the Business Window of your local Tax Services Office. The following general comments are not an advance income tax ruling and are not binding on the CCRA.
The main provisions relating to the source deductions administered by the CCRA are as follows:
- Subsection 153(1) of the Income Tax Act (the Act),
- Subsection 21(1) of the Canada Pension Plan (the Plan), and
- Subsection 82(1) of the Employment Insurance Act.
It is a question of fact as to whether a person is a "person paying...salary or wages or other remuneration", within the meaning of that expression as it is used in subsection 153(1) of the Act or an "employer paying remuneration" within subsection 21(1) of the Plan or subsection 82(1) of the Employment Insurance Act. Each particular situation would need to be reviewed before arriving at a conclusion on the liabilities for source deductions of a particular person.
Your letter refers to the possible application of subsection 159(1) of the Act to a payroll service bureau. Subsection 159(1) of the Act applies where a person is a "legal representative" of a taxpayer. The term "legal representative" of a taxpayer is defined in subsection 248(1) of the Act and "means a trustee in bankruptcy, an assignee, a liquidator, a curator, a receiver of any kind, a trustee, an heir, an administrator, an executor, a committee, or any other like person, administering, winding up, controlling or otherwise dealing in a representative or fiduciary capacity with the property that belongs or belonged to, or that is or was held for the benefit of, the taxpayer or the taxpayer's estate." A payroll service bureau would not normally fall within the above meaning of the term "legal representative" of a taxpayer.
The source deduction requirements and non-compliance penalties will normally not apply to employees and agents who carry on payroll functions as part of their ordinary employment duties or agency agreements. In the situation you have presented, the employer's bank account is being debited for wages and related source deductions and, thus, the employer is the "person paying...salary or wages or other remuneration" or the "employer paying remuneration." In such a situation, the employer would be liable for the amount of any unremitted source deductions and for penalties and interest related to the failure to remit.
The possible exposure to source deduction liabilities increases where a payroll service bureau uses an account other than its principal's bank account for wage and source deduction payments.
We hope our comments are helpful.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Enclosure
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