Over Under Remitting Payroll Source Deductions

by Kristen
(Sudbury Ontario Canada)

I work at a firm in my city. I am a bookkeeper right now. There is something that I don't understand. We have a client who is incorporated. We send spreadsheets for payroll, which shows exactly what to take for CPP, EI and federal income tax payable. We also show what to remit to the government every month.

The problem is that when the owner-manager's net check is usually lower than what our spreadsheet states. What we do in the system (Simply) is put the difference from the net cheque paid to the owner-manager and what was suppose to be the net cheque (our spreadsheet), and record it into the federal income tax.

Every month this happens. Sometimes the remittance to the government is also overpaid.

What I don't understand is what do we do to the Federal Taxes Payable in the end? I heard that we put it to shareholder if he remitted too much, which makes sense ... but if he didn't remit enough, then what happens?

Hi Kristen,

I'm not sure what the problem is. I'm going to try and use some "T" account analysis (without the T) as an example so you can visually see what is happening.

T Account Analysis - Federal Income Tax Withheld (FITW) / Payroll Tax Payable

1. I will assume the account is starting at zero balance for this example.

2. Your spreadsheet says to record say $800 in FITW; so credit $800. Account balance $800 credit.

3. You have to adjust paycheque to balance to net cheque for say $200; so credit $200. Account balance $1000 credit. I will assume that the PD7A is filed to match the net cheque not your spreadsheet.

4. The owner-manager remits say $1300 to government (over remitting by $300); so debit $1300. Account balance $300 debit.

5. Your spreadsheet says to record say $800 in FITW; so credit $800. Account balance $500 credit.

6. You have to adjust paycheque to balance to net cheque for say $200; so credit $200. Account balance $700 credit. I will assume that the PD7A is filed to match the net cheque not your spreadsheet.

7. The owner-manager remits say $900 to government (under remitting by $100); so debit $900. Account balance $200 debit. At this point, year-to-date, the account is still overremitted.

I could keep going with more pay periods.

If the under remittance in a pay period were enough to bring the account back to a credit balance; i.e not enough has been remitted year-to-date, CRA will charge interest penalties as the YTD payments are less than the YTD PD7A filed balances.

My preference would be to not record any payroll to the shareholder account unless it is a year-end adjusting entry. Keep running everything through your payroll payable accounts.

If possible, it's best to try and make sure the last payoll taxes for the fiscal year remitted in the first month on the new fiscal year bring the differences to zero. (ie. You have reconciled the account and remitted whatever is necessary to bring the account to zero.) If that hasn't happened, your T4 Summary Information return will show the difference and a PIER report may be issued in June.

If the year-end balance is an overpayment, you can request it be refunded or applied to another CRA account like GST/HST or reduce the next payroll remittance accordingly.

Of course, I'm assuming that you have spoken with the owner-manager to determine why pay cheques are issued that don't match the spreadsheet and why remittances are over/under remitted. It is possible it may have something to do with cash flow ... or the owner-manager has totally forgotten about the spreadsheet.

Not sure if this helps Kristen.



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