CRA Payroll Enforcement & Director Liability: How Unremitted Source Deductions Trigger Audits, Garnishments, Liens, and Personal Liability — Montreal CPA Firm Guide

Payroll deductions are the single most heavily enforced category of tax compliance in Canada. When a business withholds CPP, EI, or income tax from employees but does not remit these amounts to CRA, the government treats it as trust money.
Because these funds legally belong to employees and the government—not the employer—CRA considers non-remittance a serious breach. As a result, CRA uses its strongest enforcement tools: garnishments, bank freezes, Federal Court certificates, liens, and even personal liability assessments against corporate directors.
This guide explains why payroll remittance is the most dangerous compliance area, how CRA targets businesses, the legal consequences for directors, and exactly what steps are required to stop or reverse payroll enforcement.

Legal and Regulatory Framework

Payroll source deductions are governed by the Income Tax Act, the Employment Insurance Act, and the Canada Pension Plan Act.
These laws require employers to:
• withhold CPP, EI, and income tax from each pay
• remit these amounts to CRA by the due date
• maintain payroll records for inspection
• ensure accuracy in calculations and filings

If a business fails to remit, CRA may:
• issue Requirements to Pay to the employer’s bank
• garnish client payments
• freeze business bank accounts
• seize accounts receivable
• place liens on company assets
• transfer the debt personally to directors
• escalate to payroll audits

CRA does not need a court order for these actions.

Key Court Decisions

Courts consistently affirm that payroll deductions are not optional, and directors can be held personally liable. Important principles include:
• CRA may assess directors personally for unremitted source deductions
• directors are jointly and severally liable
• CRA does not need to prove fraud—only non-remittance
• directors must show they acted with due diligence to avoid liability
• source deduction debts survive bankruptcy in many cases
• objections do not stop collections for payroll debts

Courts treat payroll default as a serious legal breach, not a financial mistake.

Why CRA Targets Payroll Remittances

CRA uses an aggressive enforcement model for payroll because unpaid deductions represent money withheld from employees but never delivered to the government.
Triggers include:
• repeated late payroll remittances
• inconsistent payroll amounts
• missed payment arrangements
• failure to provide payroll records
• payroll prepared incorrectly or off-book
• unregistered employees or contractors
• employee complaints to CRA
• businesses operating in cash-heavy sectors
• corporations attempting to dissolve while in arrears

In Quebec, payroll files are referred to Revenu Québec for joint enforcement.

How CRA Enforces Payroll Compliance (Deep Expansion)

1. Payroll Audits

CRA may review:
• T4 slips
• deductions taken vs. actual remittances
• payroll journal entries
• bank statements
• subcontractor payments
• EI/CPP eligibility
• source deduction calculations

Audits often lead to reassessments, penalties, and enforcement.

2. Bank Freezes

CRA may freeze corporate accounts to force payment of trust funds.

3. Garnishing Client Payments

CRA may issue RTPs to customers, requiring them to pay CRA instead of the business.

4. Requirements to Pay to Payroll Processors

CRA can issue RTPs directly to:
• ADP
• Payworks
• Ceridian
• Nethris
• QuickBooks Payroll
• Wave Payroll

These systems must comply immediately.

5. Director Liability Assessments

If CRA cannot collect from the business, they pursue directors personally.

Director Liability: The Most Dangerous Consequence

Directors can be personally assessed for:
• unremitted CPP
• unremitted EI
• unremitted income tax
• interest and penalties
• any trust amount associated with payroll

CRA does not need to prove intent—only that the amounts were not remitted.

Directors are liable even for old debts unless:
• they resigned more than 2 years before the assessment
• they prove due diligence
• they prove the payroll system was sabotaged or mismanaged without their knowledge
• CRA failed to properly follow procedure

This is why business owners often discover thousands in payroll debt assessed directly to them.

Immediate Business Risks

Unpaid payroll leads to operational collapse:
• bank account freezes
• full receivable seizures
• garnished contracts
• suppliers refusing credit
• payroll delays (illegal under labour laws)
• employees resigning
• lenders withdrawing financing
• CRA escalating to liens or asset seizure

Payroll debt is one of the top reasons businesses fail during CRA enforcement.

Mackisen Strategy

Mackisen CPA uses a specialized payroll enforcement defence protocol to stop escalation, negotiate a structured settlement, and protect directors personally.

Step 1 — Emergency Contact With CRA

We contact CRA Collections to:
• request a temporary stop on enforcement
• identify missing payroll periods
• confirm the exact trust amount
• determine whether director liability is pending

This prevents new RTPs or freezes from being issued.

Step 2 — Filing and Compliance Correction

We immediately file or correct:
• T4 slips and T4 summaries
• payroll calculations
• source deduction discrepancies
• GST/QST returns related to salaries
• year-end adjustments
• missing T1 and T2 returns
• payroll schedules and bank confirmations

Full compliance is mandatory before CRA negotiates.

Step 3 — Review of Director Liability

We analyze:
• whether CRA followed the 2-year rule
• whether due diligence applies
• whether payroll was delegated to a third-party accountant
• whether the corporate structure protects the director
• whether objections can reduce the amount

This determines how to prevent or reverse personal assessment.

Step 4 — Cash Flow Capacity and Payment Model

CRA requires a structured plan. Mackisen prepares:
• payroll forecasts
• cash flow models
• debt servicing schedules
• business operating budgets
• refinancing options
• tax projections

This documentation allows for strategic negotiation.

Step 5 — Settlement and Negotiation

We negotiate with CRA for:
• suspension of enforcement
• structured payment plans
• reduction of penalties
• temporary protection for directors
• conditional freeze lifts
• arrangement allowing the business to continue paying employees

The goal is to avoid shutdown and protect personal assets.

Step 6 — Long-Term Compliance Plan

To prevent recurrence, Mackisen ensures:
• payroll is remitted on time
• monthly reconciliation
• GST/QST alignment
• controlled cash flow
• year-end preparation
• liaison with CRA for all communication

This restores trust with CRA and stabilizes operations.

Real Client Experience

A Montreal manufacturing company had $96,000 in unpaid payroll deductions across eight months. CRA froze accounts and issued director liability warnings. Mackisen intervened, reconstructed payroll, corrected CPP/EI errors, filed missing slips, negotiated a structured repayment plan, and prevented director liability from being enforced. The business remained operational and regained CRA compliance.

Another client, a restaurant owner, faced personal assessment for $38,000 in payroll trust debt. Mackisen proved due diligence because payroll was managed by a third-party who failed to remit. CRA removed the director liability entirely.

Common Questions

• Can CRA hold directors personally liable? Yes.
• Can CRA freeze my business account for payroll debt? Yes.
• Does filing an objection stop payroll enforcement? No.
• Can payroll debt survive bankruptcy? Yes if trust amounts.
• Can CRA garnish client payments for payroll debt? Yes.
• Can CRA seize receivables from Uber, Amazon, or Stripe? Yes.
• Can multiple directors be assessed? Yes, jointly and severally.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency, and protection from audit risk.