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Helping Canadian businesses beat the odds!
Helping Canadian businesses beat the odds!
Hi there, welcome to another edition of CPA. Today we’re talking about Canadian payroll tax. Chris and I have a Tyson here along with me again. Hello Tyson. So we’re just coming up on the new year. So, uh, what are your goals for, for 2019? Just plugging away at work and get back to school here and complete some programs to pursue my Edmonton CPA. Excellent. Any big trips? Whether this year I’m not yet. No, I’m looking at how the kid in 2019. So that’s a big goal. So it’s hard to plan a trip around that. Yup. Yup. Okay. Um, so the court, I think that we have here when he deals with Canadian payroll tax risk is a Michael Gerber Cope, no author. The Myth I want to, my favorite books is the fatal assumption is if you understand the technical work of a business, you understand the business that does the technical work.
So if you’re a contractor and you’re great at framing houses, do you know how to run a fingering company or if you’re a dentist and you know how to fill cavities and uh, a drill fill and bill, do you actually know how to run a dental practice business? Those are actually two different skills and a lot of people don’t, don’t realize that. And one of the problems that arises, Canadian payroll taxes and the stat we always go through, 50 percent of all businesses go out of business in five years and 29 percent, so roughly a third of them are going to go to visit because they run out of cash. And one of the big reasons is payroll taxes. They’re not set up to deal with them effectively. Edmonton CPA the story is business owners, they come to us and they’re behind on payroll tax and they’re staring down big penalties that have already been assessed, big penalties and they’re accruing interest rate now.
So what are the questions that these business owners should be asking? So they’re prepared to deal with this in a more organized manner. First, what does the employer contribution of CPP and ai of seven point three, seven percent. So what this means is you have to remit to see are at, you’re not just withholding tax from the employees. Check there’s an employer contribution on top of it, so over and above what you deduct off the employees check you have to deduct, you have to contribute roughly seven point three, seven percent of CPP and Eei of the employer’s money and send it to the Cra on behalf of the employee. Edmonton CPA That’s an addition to stuff that you deducted on. So it’s really important to distinguish that you’re not just sending amounts that you deducted off the employees checks. You have to send amounts in addition to the amounts that you deducted off employee checks.
Edmonton CPA it’s roughly seven point four percent here in 2019. Just went up a thanks to the beautiful federal government, but that’s, that’s nice. Um, but yeah, just went up in 2019. All right. Besides employer CPP, Mei, what are the three other components of Cra remittances? So each one of those CPP in either there’s two. So you have employees, CPP, you have employer or CPP, they’re equal, then you have employee Eei, and then you have employer and the employer, Eei is one point four times. So if you have a dollar for every dollar you deduct off of vi of an employees check, you have to send a dollar, 40 is the employer, and then you have tax. So those are the five components, CVP, employee, CPP, employer, Eei, employee, employer, and then the tax withheld. So there’s five components of remittances that you’re going to send it to cra and two of them aren’t deducted off the employees checks or they’re simply paid by the company one of the most, or are most remittances due to be submitted to Edmonton CPA.
They’re due on the 15th day of the month following when the paycheck was issued. Edmonton CPA it works on a cash basis. It’s not the pay period, it’s actually the payday. So if the payday is in January of 2019, those payroll remittances are due by the Fifteenth Day of February, 2019. So generally that’s how it works. There are some, um, you know, smaller organizations that can do quarterly if you’re slightly larger, you have to do twice a month. Um, but most small businesses are monthly on the Fifteenth Day of the month following the month in which the paycheck was issued. What is the potential penalty for being just one day? I’m submitting those burdens. It’s huge. It’s like loan shark, a Mafia type a penalty if it can be up to 20 percent. So you say you have a $10,000 of payroll. Remittances do both from the tax withheld for employees checks and the employer’s contribution, it can turn into $12,000 overnight.
That’s 20 percent, but that 20 percent happens in one day. So we’re talking, you know, we talked about credit card interest a lot in your credit card interest at 19 point nine percent. That 19 point nine percent is over a whole year. This payroll says can have a 20 percent penalty in one day. It is a, if you annualize that over a year, it’s a huge amount of. It’s like I said, it’s a mafia type territory, interest amount. So it’s not something that you want to mess with, you know, it’s the most expensive type of financing that you can get more from your payroll and remittances. So a 20 percent overnight. Would you recommend waiting until the deadline to submit your payroll? Remittances? Edmonton CPA I wouldn’t. I, I, it’s a, it’s a dangerous game. Uh, it’s usually the beginning of the end for business or you know, at least the beginning of our real dark period for the business.
So the best practice is simply you pay the employees. Most of the payroll remittances, you deducted off their, their check. You have to top off with another seven point four percent, roughly a, depending on where they are, their maximums are throughout the year. Edmonton CPA you should just send that to cra at the same time. You pay the employees the amount that amount is due, you’re processing it, you’re calculate. It’s more simple to do it on a paycheck by paycheck basis. Um, you know, it takes less time rather than go back and total which ones you paid, which ones you haven’t paid. Every time you pay the employees you send in the remittances that are, do you know that’s the best practice. That’s the, Edmonton CPA, that’s the way to do it. You don’t get behind, you know, you’re not using funds to operate your business that aren’t really yours are aggressive.
Is the CRA and collecting remittances compared to other balances. Relentless. They’re relentless. They view payroll, remittances as trust funds. So in other words, they’re not your money. You should have deducted that and send it into us. Edmonton CPA, whereas there’s a little bit more grace when it comes to personal tax or corporate tax that, or do you know, we can normally get six month payment plans, no problem with personal tax or corporate tax, payroll tax. They are, um, and they want their money now because they view it as, you know, it wasn’t your money. You knew exactly how much you deducted you. You knew how much you were deducted because you conducted it off the checks and then you didn’t send it to us. Right? Um, and it’s just not the way to finance your business. The penalties are so big that you, in most cases, you’d be better off financing your business through credit cards, then delaying your payroll payments.
So for simplicity, best practice, it’s not your money will soon, regardless of the your deadlines that 15th Day of the month or by monthly or quarterly. Once you deduct it, you pay the employees, you said in the remittances that deals with that paycheck and you can run your business, you know, with a lot less stress or directors personally liable for the barrel back. Yeah. You can’t get out of it. Sometimes people think that, well, if it goes bankrupt, I can just shut down the business and Edmonton CPA off the hook. No, you’re likely a director for that business and you are 100 percent personally liable. Both you in any of the other directors, they’re, they’re liable for those, those payroll taxes, they’re going to survive. The business theory is going to keep coming after you, whether that business is still around or, or, or not.
Edmonton CPA, so that’s it. If that was a move, we’d see new businesses starting up all the time to avoid payroll tax. But that’s, that’s not a move of Syria as their, they have their, uh, uh, their interests protected because they can come out for the directors personally for a corporation. So it’s not one of the things that, that a corporation gives you limited liability from. You can’t protect you from a outstanding payroll taxes. Okay. Why isn’t a sizable tower? I have only one spouse as a director in a risky business. So sometimes if you think the business might go sideways, if there’s, let’s say it’s a big contracting business and there’s a lot of self perform work and you’re, there’s a chance that the prime contractor might not pay, you know, now you could be out, you know, you have $100,000 in payroll and you had, you know, $35,000 in remittances.
And what if you don’t get paid? Know it’s a new business. You know, you want to shut down the business. Well, now, Edmonton CPA, if you don’t have a lot of assets, sometimes you, you can even, if you have a bunch of assets, you can protect some of them because cra can’t come after both spouses. If they’re not a director, your spouse isn’t liable just because they’re married to you, a director, that doesn’t mean anything. It’s if you actually are a director. So let’s say you have your house for example, and you know, you have $100,000 worth of equity in your house. Cra can only get 50 of it if you own that house with your spouse and your spouse is not listed as a director. So sometimes it’s a way to mitigate some of the risks with payroll, you know, they, they can only get so much.
It’s not generally the way you want to go down. Edmonton CPA, you want to make sure you’re well funded, but it can be a play to, to mitigate risks if it is a inherently risky business and you just, you want to go down that path. Okay. How does this area find out when you’re behind on your payroll tax when you filed? T? For us, yeah, so that’s a good question. So as soon as you follow your payroll tax, you’re gonna for as soon as you file your Edmonton CPA you’re going to give a total of all the remittances. You should have remade it throughout the year. And then of course cra is going to compare that to the written says you actually remitted throughout the year and as soon as they see the shortfall, now they know you’ve been short pain and throughout the year. So that’s generally when they find out.
I mean, they can always do a payroll audit before, um, and you can get caught red handed and if you’re not doing it as you’re counting, you know, we don’t, we don’t report to clients. That’s not our job. Edmonton CPA, but we know as soon as we follow that t four, you know, now it’s just a computer algorithm that’s tracking down. There’s no human being involved. You know, the computer registers that you’ve paid $40,000 for the year and you should have paid 50,000 for the year and your $10,000 short and they’re either going to demand that you pay that $10,000 or that could trigger it on themselves. Now they’re worried about the whole process here at a higher risk of being audited. So there could be some other personal benefits that are going to be attacked or some other contractors that should be employees that are, are going to come under the spotlight.
So that’s kind of the day of reckoning is when you file that t force for the year now. So your angels, there’s a deficiency and they’re going to come calling, uh, within 30 or 60 years. Certainly 90 days usually for that shortfall. Okay. How can I affect of tax planning? Help eliminate barriers, payroll tax? Yeah. This is a great question. Especially this time of the year, it’s sometimes, although you’re, you didn’t pay as much for your employees as you wanted. Maybe the owner didn’t have an efficient tax strategy. So we’ve paid a bunch of payroll tax for the owner that was actually unnecessary so we can reclassify that payroll tax paid as the owner, Edmonton CPA, as payroll tax paid for the employees and then come up with a more efficient strategy for the owner that they’re not going to have to use that much payroll tax. And what happened to us, you know, uh, not too long, a couple months ago a new client came in and he was, he said, Josh, I’m behind on my payroll tax.
And I said, okay, leave it with me and we’ll see what happens. I do the calculations and yeah, he was behind on the mouse. You should, should’ve paid as employees, but he, he submitted payroll tax far and above what he needed to do. There was much more efficient strategy to pay him much more effective combination of salary and dividends. So we’re able to reclassify that actually came out that he paid more payroll tax and he needed to pay a once we, we kind of captured the benefit of the parallelity paid himself. Edmonton CPA. So I think that’s what we have for today on Canadian payroll tax risks. Uh, as always, you know, leave your comments below and we’ll try to address any comments or questions you have in a future videos. Thanks again for watching.