The letter is arithmetic, not a judgment
Remitter type is set by a formula, not by a review of your business. CRA adds up everything remitted on your payroll account for a calendar year, employee income tax, CPP and EI plus the employer share of CPP and EI, divides it by the number of months you were required to remit, and calls the result your average monthly withholding amount. That average is compared to the thresholds, and the answer determines how often you have to send money for a later year. It has nothing to do with your compliance history, your industry or how CRA feels about your file.
The part that confuses owners is the lag. The classification for a calendar year is based on the average from two calendar years earlier, so the payroll growth that triggered the change is already well behind you. If headcount has since fallen, the classification still stands until the lookback catches up, and if you have grown further, you may be paying on a schedule set when your payroll was much smaller. CRA usually notifies you in the second half of the prior year, with the remittance forms for the coming year reflecting the new frequency.
One rule catches groups. Associated corporations have to combine their average monthly withholding amounts for this purpose, so running two payrolls through two companies under common control does not keep either one below a threshold. The same applies where a payroll account is carrying amounts from a division or a business you have since sold; the historical numbers stay in the calculation until they are corrected.
What accelerated actually means for your due dates
The schedule changes, not the amount. A regular remitter, with an average under the first threshold, sends the deductions for a whole month by the fifteenth day of the following month. That single date is what most owners think of as normal payroll, and it gives you roughly six weeks of float on the earliest pay run of the month.
- Threshold 1: deductions for employees paid in the first fifteen days of a month are due by the twenty-fifth of that same month, and deductions for pay dates from the sixteenth to the end of the month are due by the tenth of the following month. Two payments a month, and the float on the first one collapses to about ten days.
- Threshold 2: the month is cut into four periods, the first to the seventh, the eighth to the fourteenth, the fifteenth to the twenty-first, and the twenty-second to the end. Each remittance is due within three working days after the end of its period, which in practice means the money leaves almost with the payroll.
- Quarterly: available at the other end of the scale to small and new employers with a very low withholding average and a clean twelve-month compliance record, with the remittance due by the fifteenth of the month following each quarter.
Two mechanical points matter more than the calendar. A remittance is on time when CRA or a financial institution actually receives it, not when you mail or initiate it, so a payment sent on the due date is late. And remittances above $10,000 generally have to be made electronically or through a financial institution rather than by cheque, with a penalty for doing it the old way. Between the shortened windows and the payment method, accelerated remitting is a treasury process rather than a bookkeeping task.
What pushed you over, and whether to ask for a review
The threshold is crossed by ordinary events, and only some of them are worth challenging. CRA will review the calculation where the underlying figures are wrong, but not because the new frequency is inconvenient.
| What pushed the average up | Worth asking CRA to review? | What to do about it |
|---|---|---|
| Real headcount and wage growth | No. The calculation is correct and the classification will stand | Rebuild the payroll cash calendar around the new dates |
| A one-time year with a large bonus or retiring allowance | Sometimes. Ask CRA to look at the average once the year is understood as non-recurring | Request the review in writing, and keep remitting on the accelerated schedule until it is changed |
| An owner bonus paid at year-end to manage corporate tax | No, it counts like any other payroll | Consider spreading owner compensation, or accept the higher frequency as part of its cost |
| Payroll from a business or division you have since sold | Yes. The amounts belong to an operation you no longer run | Provide the sale details and ask that the account history be adjusted |
| Associated companies combined into one average | Only if the companies are not actually associated | Confirm the control and ownership facts before disputing anything |
| A reporting or posting error on the payroll account | Yes, and this is the most common successful review | Reconcile the account year by year, then submit the corrected figures |
Moving back down happens automatically rather than on request. When the lookback year average falls below the threshold, CRA reclassifies you for the following year. It does not happen mid-year, so a business that shrinks in the spring keeps paying four times a month until the calendar catches up. Planning around that gap is easier than arguing about it.
The penalty attaches to the schedule, not to the total
The most expensive mistake is remitting the right amount on the wrong dates. Once you are accelerated, sending the full month deductions on the fifteenth of the following month is a late remittance for both periods, even though the total is correct and CRA is not short a dollar at month end. The penalty for failing to remit on time is graduated by how late the payment is, starting at 3% for one to three days and rising to 10% once it is more than seven days late or not remitted at all, with a higher rate for repeated failures in the same year where the pattern is treated as more than carelessness.
Source deductions also carry weight that other tax accounts do not. Amounts withheld from employees are held in trust for the Crown rather than owed to it, which means they sit outside the ordinary creditor queue, and directors can be held personally liable for unremitted amounts along with the related interest and penalties. That personal exposure is why we treat a payroll arrear differently from almost any other balance: it gets cleared first, ahead of items with larger numbers attached.
Lenders read it the same way. Because the deemed trust ranks ahead of a bank security position, unremitted source deductions erode collateral directly, and a payroll arrear discovered during underwriting can stall or sink a credit request. That connection is set out in how banks evaluate business financial statements. If you have fallen behind, remit what you can immediately rather than waiting to pay it in full, because the penalty is driven by delay.
The cash flow change is the real impact
Accelerated remitting removes float you had been quietly using. Under monthly remitting, deductions from an early-month payroll sat in your account for weeks, and many owner-managed businesses had built their working capital rhythm around that lag without ever deciding to. Under Threshold 2 the same money leaves within days of each pay run, and the transition month is worse than the steady state, because you can end up funding the old schedule and the new one inside the same few weeks.
Three practical adjustments handle it. Fund the remittance out of the same transfer that funds net pay, so the gross cost of payroll leaves the operating account at once and the balance you see is real. Review the operating line, since the change compresses the low point of your cash cycle even though annual costs are unchanged. And align the pay calendar with the remittance periods, because semi-monthly pay dates map cleanly onto Threshold 1 windows while awkward pay dates create needless extra remittances.
If your business pays employees in more than one province, the payroll account is federal but the surrounding obligations are not. Provincial payroll taxes such as Ontario employer health tax run on their own calendar and their own thresholds, and employees working in another province can raise the question of whether the corporation has a taxable presence there. Those issues are covered in what a multi-province business should review for tax compliance and what a permanent establishment means for provincial corporate tax.
What changes the answer, and how we handle it
Five facts determine what your business actually has to do:
- Your average monthly withholding amount two calendar years back: it is the only figure that sets the frequency, and it is checkable
- Whether the group is associated: combined averages can push companies over a threshold neither would reach alone
- Whether the lookback year was distorted: a one-time bonus or a divested division are grounds for a review, ordinary growth is not
- Your pay calendar: semi-monthly, biweekly and monthly pay dates land very differently against the remittance periods
- Where your employees work: provincial payroll taxes and provincial presence sit outside the federal remittance schedule entirely
Our involvement is deliberately boring. We verify the average CRA used, check whether an association or a stale account history has inflated it, request a review where the figures are genuinely wrong, and then rebuild the remittance calendar so the payments are scheduled rather than remembered. Where a business has already fallen behind, we quantify the arrears with the penalty and interest, deal with the director exposure first, and put a reconciliation in place so the payroll account is checked monthly instead of at T4 time. That is routine CRA support and corporate compliance work for a CPA in Ontario, and it lives under CRA Support & Representation.
The wider habit that prevents this from becoming a recurring problem, including the monthly reconciliation and the events that change the amount owing, is set out in how to prevent payroll remittance surprises. If a notice has just arrived and you are not sure the number behind it is right, a free 15-minute discovery call is enough to check.
Source: CRA — Remitting source deductions.
