Source deductions late penalty: 3% to 10%, or 20% on a repeat

As of 2026, the CRA charges 3% on a payroll remittance up to 3 days late, 5% at 4 or 5 days, 7% at 6 or 7 days and 10% after that, under ITA 227(9), generally on the part above $500. A knowing or grossly negligent repeat in the year costs 20%, plus interest at 7% (Q4 2026).

What does each day late cost on a source deduction remittance?

ITA 227(9) sets the penalty by how late the Receiver General receives the money, and the CRA applies the same scale on its due date page canada.ca. The right column shows the penalty on a $12,400 remittance, where the rate applies to $11,900 (the part above $500).

When the CRA receives it	Rate	Penalty on $12,400
On time, but not paid in the required manner	3%	See the payment method section
No more than 3 days late	3%	$357
4 or 5 days late	5%	$595
6 or 7 days late	7%	$833
More than 7 days late, or never remitted	10%	$1,190
Repeat in the same year, made knowingly or with gross negligence	20%	$2,480

The $500 floor comes from ITA 227(9.1). For income tax, CPP and EI your client was required to remit, the penalty applies only to the amount by which the total due on that date exceeds $500, unless the delay or shortfall was made knowingly or under circumstances amounting to gross negligence laws-lois.justice.gc.ca. Once the CRA makes that finding, the floor disappears and the rate runs on the whole amount, which is why the 20% row uses $12,400.

The statute counts days after the due date: "no more than three days" for 3%, then more than three and no more than five for 5%, then more than five and no more than seven for 7%. Anything not received by the seventh day after the due date is at 10% laws-lois.justice.gc.ca. Due dates by remitter type are on payroll remittance due dates.

Worked example: a September remittance paid 12 days late

Your client is a regular remitter and owes $12,400 of income tax, CPP and EI for September 2026 pays. The due date is Thursday, October 15, 2026. The bookkeeper is away, and the online payment credits the CRA on Tuesday, October 27, 12 days late.

Line	Amount
Remittance due	$12,400.00
Less the $500 floor in 227(9.1)	$500.00
Amount the penalty applies to	$11,900.00
Penalty at 10% (more than 7 days late)	$1,190.00
Interest at 7% compounded daily for 12 days	$28.57
Cost of paying 12 days late	$1,218.57

Interest runs under ITA 227(9.2) from the day the amount was due to the day it is remitted laws-lois.justice.gc.ca. The rate on overdue taxes, CPP contributions and EI premiums is 7% for October 1 to December 31, 2026 canada.ca, and the CRA compounds it daily canada.ca. That's about $2.38 a day on $12,400. The quarterly rates are on the CRA interest rate on overdue taxes.

Timing matters more than interest here. Had the payment landed on Thursday, October 22 (7 days late), the penalty would have been 7% of $11,900, or $833, so five more days cost $357. If the CRA had found the delay grossly negligent, the floor would go and the 10% would apply to all $12,400: $1,240.

When does the 20% rate apply?

Two conditions, both required. At the time of the failure, a 227(9) penalty must already be payable by your client for an amount that should have been remitted during the same year, and the new failure must be made knowingly or under circumstances amounting to gross negligence laws-lois.justice.gc.ca. The CRA describes it as a second or later assessment in a calendar year canada.ca.

So a second late payment in the same year doesn't move to 20% on its own. A client who is late in March because of a bank error and late again in August through an honest oversight stays on the 3% to 10% scale both times. The 20% rate is for the client who keeps paying payroll late on purpose, often to fund operations with the employees' withholdings.

For income tax withheld from salary and wages, ITA 227(9.5) treats each establishment of your client as a separate person when counting toward the 20% rate laws-lois.justice.gc.ca. A penalty at one branch doesn't make the next failure at another branch a repeat.

Failing to deduct costs more than remitting late

If your client never withheld the amounts, ITA 227(8) imposes a penalty of 10% of the amount that should have been deducted, or 20% for a repeat in the year made knowingly or with gross negligence laws-lois.justice.gc.ca. Under 227(8.4) your client also owes the full amount that should have been withheld, as tax on the employee's behalf, and can recover it from the employee.

For CPP and EI the CRA assesses both the employer's share and the employee's share of what was owing, then adds the 10% on the CPP, EI and income tax that was not deducted canada.ca.

The $500 floor in 227(9.1) is written for failures to remit, so it doesn't reduce a failure to deduct penalty. A common case: a bonus paid outside payroll with no withholding. On $20,000 of tax, CPP and EI that should have come off, your client owes the $20,000 plus a $2,000 penalty plus interest, before trying to collect the employee's share back.

How the payment method can trigger a penalty when you pay on time

Threshold 2 remitters must remit electronically or at a Canadian financial institution. A payment made on the due date any other way draws a 3% penalty, though under CRA administrative policy a payment made one full day before the due date draws none, because it is considered made when paid at a financial institution canada.ca. Who is threshold 2 is covered on the accelerated remitter threshold.

Every remitter has a second rule: any remittance to the Receiver General over $10,000 must be an electronic payment unless your client can't reasonably pay that way laws-lois.justice.gc.ca. Each failure costs a flat $100 under ITA 162(7.4) laws-lois.justice.gc.ca. A $12,400 remittance mailed by cheque, even on time, would still carry that $100.

"Received" means different things by method. Online or telephone banking counts on the date the bank credits the CRA, an in person payment at a financial institution counts on the date stamped on the voucher, and mail counts on the date the CRA receives it canada.ca. A payment sent from online banking at 11 p.m. on the due date can credit a day later and fall into the 3% band.

Can the CRA cancel the penalty, and who else is on the hook?

Yes, through taxpayer relief. The CRA can cancel penalties and interest for extraordinary circumstances (a flood or fire, serious illness or accident) or for its own actions, such as processing delays or incorrect information it gave you. Financial hardship can relieve interest only. Requests must concern a period ending in the 10 calendar years before the year you apply canada.ca. The grounds and the RC4288 process are on taxpayer relief RC4288.

If a corporation doesn't remit, the directors in office at the time are jointly and severally liable with it for the amount plus penalties and interest, unless they acted to make sure the deductions and remittances were made canada.ca. The conditions and the two year limit are on director liability for source deductions.

Penalties aren't the ceiling. For failing to meet deducting, remitting or reporting requirements, the CRA says your client could be fined $1,000 to $25,000, or fined and imprisoned for up to 12 months canada.ca.

Yes. The CRA applies interest to unpaid penalties as well as to the unremitted amount, at the same quarterly rate compounded daily canada.ca. Paying the remittance quickly stops interest on the deductions, but the penalty keeps accruing interest until it is paid too.

No. The second failure also has to be made knowingly or under circumstances amounting to gross negligence laws-lois.justice.gc.ca. An ordinary second late payment is charged on the 3% to 10% scale like the first.

No. Amounts deducted under Quebec tax law and remitted to Revenu Québec carry 7% if no more than 7 days late, 11% at 8 to 14 days and 15% after that revenuquebec.ca. A Quebec employer can face both scales in the same month: the CRA scale on federal tax and EI, and the Revenu Québec scale on its own remittance.