What to take away
- The penalty is 3%, 5%, 7% or 10% depending on how late the payment is, and 20% for repeated knowing failures in a year.
- Interest runs from the due date, compounds daily and also applies to unpaid penalties.
- Pay the shortfall immediately, then ask about relief if circumstances justify it; directors should confirm remittances are being made.
What counts as a late remittance
A remittance is the payment you send to the CRA for the amounts you withheld from employees plus your own share. Your due date depends on your remitter type, which the CRA generally assigns from your average monthly withholding amount from two calendar years ago. A small new employer with a perfect compliance record may be a quarterly remitter, most small employers remit monthly by the 15th of the following month, and larger employers remit up to two or four times a month.
A payment is late when it arrives after that date. If the due date falls on a weekend or a public holiday the CRA recognizes, a payment received or processed at a Canadian financial institution by the next business day is on time. Check the remitter type shown in your CRA account rather than assuming it, because a change in payroll size can change it.
The penalty scale
The CRA charges a penalty when you deduct amounts over $500 and either do not send them or send them late. It also applies when the amount is under $500 and you knowingly, or in circumstances of gross negligence, fail to send it or send it late. The rate rises with delay: 3% if the payment is one to three days late, 5% if it is four or five days late, 7% if it is six or seven days late, and 10% if it is more than seven days late or nothing is remitted.
A 20% rate applies if this is the second or later time you are assessed the penalty in a calendar year and the failures were made knowingly or in circumstances of gross negligence. A cheque that is returned for insufficient funds, a closed account or a stopped payment can also carry a fee of up to $25 per cheque. Because the scale steps up quickly, a payment that is a few days behind costs far less than one left for a month.
How interest adds to the cost
Interest is separate from the penalty. If an amount due is not paid, the CRA may charge interest from the day the payment was due. The CRA sets the rate every calendar quarter from prescribed interest rates, compounds it daily and applies it to unpaid penalties as well as unpaid remittances. The rates are announced in the month before each quarter, so look at the current rate rather than relying on a figure from an older article.
The practical consequence is that an old, small unpaid balance does not stay small. Penalty and interest are added to the account, and interest then accrues on the penalty. If you find an old shortfall, pay the tax portion first to stop it growing, then deal with the rest.
An illustrative example
Suppose a monthly remitter owes $4,000 for April payroll, due May 15, and pays on May 20. That is five days late, so the 5% rate applies and the penalty is $200 in this simplified illustration. Interest from May 15 would be added at the prescribed rate, and a second late payment later in the year would be assessed on its own facts. If the same $4,000 were never remitted, the 10% rate would produce a $400 penalty plus continuing interest.
The numbers are illustrative only and ignore the interest rate for the period. The point is the pattern: the penalty is a percentage of the amount remitted late, so the larger the payroll, the more a missed date costs. Compare that with the effort of a reminder and a standing payment instruction.
Where timing goes wrong in practice
A few situations catch employers. The method of payment determines the date counted: an online or telephone banking payment is dated when the institution credits the CRA, a mailed payment when the CRA receives it, and a My Payment transaction generally the same day if made on a business day. Leaving a payment to the last evening is risky for that reason.
Other traps are seasonal or no-payroll months, which still require a nil remittance report by your due date, along with a date when you expect to remit again, because the CRA otherwise expects remitting to resume the following period, and a closing business, which must report a final remittance within seven calendar days of events such as stopping operations, a change in legal status or bankruptcy. A January remittance for December pay is treated as late if you pay it with your T4 return and that return is filed after the due date.
If you under-remitted or over-remitted
If you find you paid too little, remit the required amount immediately. A penalty and interest may still be charged for the late payment, but delay only adds to them. If you overpaid in the current year, you can apply the overpayment to a future payroll period or request a refund through CRA sign-in services, by phone or by letter. For a prior-year overpayment, include an explanation with the request.
A difference between your remittances for the year and the T4 Summary can produce a PD4R discrepancy notice. Errors in the calculation of deductions themselves are handled differently: tell the employee as soon as you know, then follow the CRA’s correction process for before or after filing. Compare your payroll register, bank payments and CRA account regularly so differences surface early.
Directors and personal liability
Withheld deductions are held for the Crown, and the CRA treats a failure to remit seriously. Directors of a corporation can be jointly and severally liable for unremitted amounts, with interest and penalties. The CRA’s circular says it must first show it cannot collect from the corporation, that it must assess a director within two years after the person last ceased to be a director, and that directors are not liable if they exercised due diligence.
Due diligence means steps taken before the failure, such as keeping a separate account for withholdings, having officers report regularly on that account and getting regular confirmation that remittances were made. Delegating to a bookkeeper or payroll provider does not remove the question; it makes the confirmation step more important. If you are a director and unsure about the payroll account, ask for the remittance confirmations.
Asking for relief and what to bring
The CRA can cancel or waive penalties and interest in certain circumstances, such as extraordinary circumstances beyond your control, an error by the CRA, or a confirmed inability to pay, which more often leads to interest relief than to cancelled penalties. Relief is discretionary and generally limited to roughly the past 10 years, so ask promptly. A request is made on Form RC4288 or by letter, and it helps to explain what happened, the dates and what you changed.
Bring your remitter type, due dates, payment confirmations, the assessment or notice, the payroll register and a short timeline. Ask your accountant whether the failure is isolated or part of a pattern, since the CRA considers compliance history when it reviews a request. Sora’s payroll and bookkeeping services can help build a reminder routine; the right fix depends on your payroll size and circumstances.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- When to remit payroll deductions and contributionsCanada Revenue Agency
- Make corrections after you remit (pay)Canada Revenue Agency
- Income Tax Information Circular IC89-2: Director’s liabilityCanada Revenue Agency
- IC07-1R1, Taxpayer Relief ProvisionsCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.