We all know that managing cash flow is very important for any business. One cash flow area requiring special consideration is the money that you collect on behalf of the government – employee payroll deductions and HST collections.
Your business incurs a liability every time a deduction or collection is made that is required by law to be held in trust for the Receiver General. You need to make sure that these monies are calculated correctly and remitted to the government on time. Paying lower than the correct amount will result in penalties and interest while overpaying means tying up cash that could be used for other purposes. Your company’s directors are liable for any CPP, EI and Income Tax amounts that have not been properly deducted or paid to the government on time.
Several factors are taken into account in determining the frequency of payroll remittances to the government. There are four remitter types:
Small new employers will fit into this category if their Average Monthly Withholding Amount (AMWA) ranges from $0 to $999.99. Small companies that have been operating for twelve months and have an AMWA (see definition below) between $0 and $2,999.99 also fit into this category. These companies would remit the deducted payroll amounts and the employer portions on April 15th, July 15th, October 15th and January 15th. These more frequent payments can help companies to better manage their cash flow.
This is where the Average Monthly Withholding Amount (AMWA) calculation becomes applicable. Your AMWA is the total of all the Canada Pension Plan (CPP), employment insurance (EI), and income tax you had to remit for the year, divided by the number of months (maximum 12) that you had to remit for. If your AMWA was less than $25,000 two years ago, your company will be a regular remitter.
Any new employer that does not qualify for submitting on a quarterly basis will also be a Regular remitter.
Remittances must be made by the 15th of the following month.
There are two classes of accelerator remitters:
Threshold 1 – AMWA of $25,000 to $99,999.99 two years ago. Remittances will be up to twice a month based on two periods:
- 1st to the 15th of the month; remittance must be made by the 25th of the month.
- 16th to the end of the month; remittance must be made by the 10th of the next month.
Threshold 2 – AMWA higher than $100,000. Remittances are based on weekly periods (1st day to 7th day, 8th day to 14th, 15th to 21st, 22nd day to the end of the month) and must be made by 3rd day after the weekly period ends
Penalties for Not Remitting on Time
If remittances are not paid on time, penalties are assessed. As well, any interest and penalties are not tax-deductible. The penalties for deducting and not remitting or remitting late are incurred as follows:
- 3% if the amount is one to three days late
- 5% if the amount is four or five days late
- 7% if the amount is six or seven days late
- 10% if the amount is more than seven days late or if no amount is remitted
When the due date is a Saturday, Sunday, or a public holiday recognized by the CRA, your remittance is considered on time if the CRA receives it on the next business day.
If you under-remit due to calculation errors, the CRA may also assess a penalty. As mentioned above, these penalties are not tax-deductible.
Now that we have covered payroll taxes, let’s look at how to best manage cash flow in relation to HST. The Excise Tax Act (ETA) defines a “person” as an individual, a corporation, the estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of any kind. The Persons that must collect and remit GST/HST are those that provide the supply of HST-taxable goods and services as part of a commercial activity. The ETA defines “commercial activity” as the business carried on by a Person other than any part of the business that generates exempt supplies (goods and services).
There are three categories of supplies with respect to taxability:
- Fully Taxable – taxed at the GST/HST rate.
- Zero-Rated – taxable supplies that are taxed at zero percent.
- Exempt – these products are exempt from GST/HST. Companies providing these exempt supplies do not collect GST/HST and are not eligible for input tax credits for GST/HST paid on the related purchases.
A supplier must be able to deal with the transaction taxes in any province his/her good and services are delivered to, as well as the transaction taxes in the province where he/she is located. For tangible goods, the calculation of GST/HST to be charged is based on where the goods are delivered. For real property, the rate to be charged is based on the location of the property sold and not on the location of the buyer. When it comes to services, the rate used is based on where the service is provided.
GST/HST Returns and Payments
All businesses and organizations that are registered to collect GST/HST are required to file a GST/HST report on a periodic basis, even if there is no activity during the relevant period. Filing frequencies for remittance are determined by the total annual taxable supplies made by the registrant.
|Annual Taxable Supplies||Assigned Reporting Period||Optional Reporting Period|
|$1,500,000 or less||Annual||Monthly or Quarterly|
|$1,500,000 to $6,000,000||Quarterly||Monthly|
|Greater than $6,000,000||Monthly||None|
For monthly and quarterly filers, the returns are due one month after the end of the reporting period. Annual reporters need to file within three months after their year-end. Individuals with business income and a December 31st fiscal year-end who file annually must remit their net tax by April 30, however, can file their return afterward, up until June 15th of the same year.
Installments are not required for monthly or quarterly filers, who remit tax along with their returns. Annual filers, on the other hand, are required to make quarterly installments if they remitted more than $3,000 in GST/HST for the previous fiscal year. Each installment should be one-quarter of the net tax owing from the previous year. These installments are due one month after the end of each quarter.
Similar to insufficient or late remittances of payroll amounts, interest is charged on amounts owing or late or deficient payments of HST or GST and this interest is not tax-deductible. In addition, the late filing penalty is equal to 1% of the unpaid amount, plus ¼% per month for a maximum of twelve months.
Other Items Relating to GST/HST Collection & Remittance
For non-monetary transactions, GST/HST is still applicable and an estimate must be made on the fair market value of the consideration received. In the case of trade-ins, for example, GST/HST is levied on the net amount after the trade-in.
If you operate a business that requires the collection and remittance of payroll deductions and/or HST/GST, the accounting professionals at Edelkoort Smethurst Schein CPAs LLP can assist you. We assist clients from single freelancers to large organizations with the management and remittance of these deductions and will ensure that you are fully compliant from the start. To speak with one of our experienced accountants about managing or advising on your business’s accounting needs, please contact us by phone at 905-517-2297 or fill out our online contact form.