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E-Myth – “Why most small businesses don’t work & what to do about it”

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Virtual Accountant | Learning How To Pay Source Deductions On Time

While many entrepreneurs understand how important it is to ensure that their withholding source deductions from their employee’s checks says virtual accountant, they may not realize that there is a deadline that they must meet on a monthly basis to ensure that they are submitting payroll remittances on time. If an entrepreneur fails to submit these amounts to Canada revenue agency on time, or if they are not submitting the correct amount, they are putting their business at risk for payroll audit. This can be financially devastating for entrepreneurs, especially if they are new and are low on funds in the first place. And then the percent of all failed entrepreneurs say the reason why they failed is that they ran out of money, and avoiding a payroll audit can help them avoid running out of money in their business.

While many entrepreneurs understand that they must withhold payroll taxes on checks to their staff, but many entrepreneurs may not understand that not only do they have to do that for their employees, but if they are taking a salary themselves they must ensure that they are withholding from their own salary as well. Virtual accountant says that entrepreneurs need to ensure that they are withholding not only CPP, but the employer percentage as well as EI and income tax.

An entrepreneur needs to ensure that they are submitting these payroll remittances to Canada revenue agency by the fifteenth day of the month following the month where the paychecks were issued. For example, if an entrepreneur has issued payment in February, the people’s remittances are due to the Canada revenue agency by the fifteenth day of March. As long as an entrepreneur is making payments monthly, Canada revenue agency will have a problem with it, even if an entrepreneur is paying to little. Because they will get any warnings if they are not enough, they need to be in very careful through pay the correct amount so they can avoid being hit with a penalty at the end of the year.

Virtual accountant recommends that entrepreneurs do not wait until the fifteenth day of the month in order to submit payment, because if they have any problems they could end up triggering late penalties. Best practices is for an entrepreneur to ensure that they are submitting payments to Canada revenue agency at the same time that they are issuing checks to their staff. If they get into this habit, they will never have a late payment and can avoid triggering penalties.

If an entrepreneur misses a payroll remittances month, if they fail to file their T4 and T5 slips on time, or if they have submitted to little payroll remittances, this may cause Canada revenue agency to take action. The best-case scenario is that they will send the entrepreneur letter asking for payment in full. However, the worst-case scenario is this will trigger a payroll audit. In order to avoid this hassle, entrepreneurs should ensure that there filing their slips on time, and paying source deductions every month and for the correct amount.

Virtual Accountant | Learning How To Pay Source Deductions On Time

It can be very easy for many entrepreneurs to avoid triggering a payroll audit in their business says virtual accountant, simply by ensuring they are filing their T4 and T5 slips on time, and remitting the proper amount of source deductions to Canada revenue agency on a monthly basis. However, despite many entrepreneurs’ best efforts, things can happen and an entrepreneur may find themselves facing a payroll audit. If this is the case, entrepreneurs can remember several things that can make the process go smoothly, and help them avoid paying additional taxes and penalties.

While it is very important for entrepreneurs to ensure that they are submitting the correct amount of source deductions, but virtual accountant says entrepreneurs need to keep in mind that if they are short any amount, they have grace. Up until January 15 to catch up on any missed amounts from the previous year. Unfortunately, not all entrepreneurs have the cash available to be able to make that the lump-sum payment. However, all is not lost if this is the case. If they are aware that they have underpaid remittances, sometimes they can ask their virtual accountant to help them reclassify their income either as a shareholder loan or as a dividend, so that all of the payroll remittances that an entrepreneur has submitted for themselves, can be reclassified as a source deductions for their employees. This often is enough for an entrepreneur to avoid short in their payroll remittances. If this is the case, entrepreneurs can avoid getting a demand letter or worse, triggering a payroll audit.

If an entrepreneur is facing an audit, one of the first things that they should do is have their virtual accountant go through their personal benefits prior to the auditor reviewing the statements. This way, if an entrepreneur has any transactions in their business that they have not accounted for on their T4 or it T5, they can claim it on their shareholder loan account. This way, an entrepreneur can appear credible to the auditor, that they are being transparent about what transactions they have made in their business personally. By being credible and transparent, an auditor is more likely to give the entrepreneur benefit of the doubt when looking at questionable transactions, or grey area transactions.

An auditor will typically ask an entrepreneur to provide bank and credit card statements for each month of the last year of business as well as the general ledger. They are going to be looking for any transactions that a business owner had personally that was not accounted for, and any amounts that an entrepreneur may have made employees that they did not withhold source deductions on. If an entrepreneur has had a lot of transactions that are questionable, they could be facing a lot of the penalties. However, the more honest an entrepreneur can be with the auditor, and twenty at all of the transactions and keeping a good record, can help them get through the payroll audit quickly, and without having to pay a hot large amount of penalties.