Transcript

Host: Welcome to the segment called Penalties and interest, part of the Preparing T4 and T4A Information Returns – Slips and Summaries video.

With me is Michael Tremblay. Welcome Michael.

Subject matter expert: Thank you Janice.

Host: Why might someone receive a penalty in regard to payroll?

Subject matter expert: You may be assessed a penalty for a number of reasons such as not deducting or remitting the proper deductions; remitting your deductions late; filing an information return or distributing information slips late; or not getting a recipient's social insurance number.

Host: What penalties apply if I don't make the proper deductions?

Subject matter expert: It’s very important to correctly calculate Canada Pension Plan, or CPP, contributions, employment insurance, or EI, premiums, and income tax deductions.

If you don’t, the CRA will ask you to submit the CPP and EI you didn’t deduct and apply a 10% penalty of that amount. If you fail to deduct the required amount more than once in a calendar year, a 20% penalty may apply to the second or later failures, if they were made knowingly or under circumstances of gross negligence.

If they're not, the CRA can assess a penalty of 10% of the amount of CPP, employment insurance, and income tax you didn't deduct. If you fail to deduct the required amount more than once in a calendar year, a 20% penalty may apply to the second or later failures, if they were made knowingly or under circumstances of gross negligence.

Host: What if I deducted the amounts, but failed to remit those deductions or remitted them late?

Subject matter expert: The CRA can assess a penalty on the amount you failed to remit when you deduct the amounts but do not remit them, or if the CRA receives the amounts you deducted after the due date.

The penalty for remitting late is:

• 3% if the amount is one to three days late;
• 5% if it's four or five days late;
• 7% if it's six or seven days late; and
• 10% if it's more than seven days late or if no amount is remitted.

Generally, the CRA only applies this penalty to the part of the amount you failed to remit that is more than $500. However, in certain circumstances, the CRA may apply the penalty to the total amount.

If you are subject to this penalty more than once in a calendar year, the CRA may assess a 20% penalty on the second or later failures if they were made knowingly or under circumstances of gross negligence.

Host: What happens when you file an information return late?

Subject matter expert: The penalty for failing to file an information return by the due date can go from a minimum of $100 to a maximum of $7,500. Additional slips subsequently filed after the due date may also be subject to late filing penalties.

The penalty is based on the number of slips that are filed with the return, and the number of days late they're filed. For more information on the penalty to www.cra.gc.ca/penaltyinformationreturns.

The link is included in the Related links to this segment.

Host: What if I send the information return to the CRA, but do not send the copies to the recipient?

Subject matter expert: You must give employees their T4 or T4A slips on or before the last day of February following the calendar year that the slips apply to. If you don't, you may be subject to a penalty. The penalty for failing to distribute T4 or T4A slips to a recipient is $25 per day for each slip not distributed with a minimum penalty of $100 and a maximum of $2,500.

It’s just as important that you distribute two copies to the recipient as it is to send the slips to the CRA. If you don’t make the slips readily available for the individual by the due date, they have a right to file an employee complaint with the CRA.

There are two instances where an employee complaint form may be filed, if the individual disagrees with the values on the slip; or if you refuse to provide copies of the slip to the individual.

In these cases, the CRA will process the complaint and contact you for more information.

Host: That's good to know Michael. Now in what circumstances will I receive a penalty for not getting an individual's social insurance number?

Subject matter expert: Under the Canada Pension Plan Regulations, you have to tell your employees who don't have a SIN how to get one. Refer them to Service Canada within three days of the day they start work and ask them to provide you with proof of their application.

If you, as the payer, don't make a reasonable effort to get the SIN, you may be subject to a penalty of $100 for every SIN that you don't get.

Host: What if I tried to obtain it, and was unsuccessful?

Subject matter expert: As long as you can prove that you made a reasonable effort to get an employee's SIN, then you can avoid these penalties.

Host: What do you mean by a "reasonable effort"?

Subject matter expert: A reasonable effort means that you asked the employee for his or her social insurance number. The request can be made through various means such as by email, telephone, or in person.

Host: And how could I prove to the CRA that I made a reasonable effort?

Subject matter expert: Document everything.

For example, let's say you've asked your employee for his or her SIN many times. You should then write to the employee to request it. Record the dates you asked, and keep a copy of the written request and any other related correspondence. Keep notes of the phone numbers you've called, the addresses that you have on file, and any other form of proof that is practical for tax purposes.

Host: Okay, so would I still file the slip even if I don't have the SIN?

Subject matter expert: Yes, if you did everything you could to obtain the SIN, and you can't get it, you still file the return without it. Just enter nine zeros instead of the SIN and attach the proof of the effort you made along with it.

Host: Now that we know about the penalties, when is interest applied?

Subject matter expert: If you fail to pay an amount owed, the CRA can apply interest from the day your payment was due.

Interest is applied to penalties from the date they are assessed.

Host: How often is interest calculated?

Subject matter expert: Interest is compounded or recalculated daily, based on the annual rate.

Host: And what is the annual rate?

Subject matter expert: The interest rate the CRA uses is updated every three months, based on prescribed interest rates.

For more information on prescribed interest rates, go to www.cra.gc.ca/interestrates and select "All Rates." The link is included in the Related links for this segment.

Host: Thank you Michael.

This concludes the segment called Penalties and interest, part of the CRA's Preparing T4 and T4A Information Returns – Slips and Summaries video.

Thank you for watching.