CRA Payroll Source-Deduction Audit — Montreal CPA Firm Near You: CPP/EI/Tax Remitted

A CRA Payroll Source-Deduction Audit is one of the most common and financially serious reviews for employers. The Canada Revenue Agency and Revenu Québec both consider payroll taxes — CPP/QPP, EI, QPIP, and income tax withholdings — as trust funds held on behalf of the government. Any shortfall, late payment, or missing slip can trigger personal liability for directors.
Mackisen CPA Montreal defends and represents employers in CRA and ARQ payroll audits, ensuring every deduction, remittance, and record aligns with the law while protecting both corporate and personal assets.

Legal Foundation

Law: Income Tax Act s.153 (employer withholding obligations); Employment Insurance Act s.82; Canada Pension Plan s.21; Tax Administration Act (Québec) s.968–969; LAF art.40–44.
Jurisprudence: Soper v. Canada (1997 FCA) — confirmed that directors can be personally liable for unremitted payroll deductions if due diligence is not proven.

Learning insight: CRA treats payroll taxes as government property from the moment they are withheld. Every delay in remittance is a legal breach, not just an accounting error.

Why CRA Targets Payroll Deductions

Payroll audits are triggered when CRA or Revenu Québec detects mismatches between T4/RL-1 slips, source deductions, and remittances. These reviews are designed to ensure employers have properly withheld and remitted all payroll obligations on time.

Common CRA triggers include:

• Late or missing payroll remittances.

• T4/RL-1 totals not matching CRA or ARQ statements.

• Contractors reclassified as employees.

• Source deductions remitted after year-end.

• Missing CPP/EI/QPP contributions.

• Director changes or payroll compliance gaps after corporate restructuring.

Learning insight: Payroll compliance is not optional — it’s fiduciary. CRA assumes any missing remittance was used for other purposes unless you prove otherwise.

How a CRA Payroll Audit Works

1. Initial Audit Letter: CRA requests payroll registers, T4 summaries, and remittance proofs.

2. Books & Records Review: Auditors match remittances to bank payments and employer accounts.

3. Employee Verification: CRA may contact workers or contractors to confirm pay details.

4. Reclassification Testing: CRA applies common-law tests to determine if contractors are actually employees.

5. Assessment: CRA issues a Notice of Assessment for unremitted taxes, interest, and potential penalties under s.227(9).

Learning insight: CRA audits payroll by tracing money flow, not explanations. Mackisen CPA ensures the trail leads to compliance, not confusion.

What Mackisen CPA’s Payroll Audit Defense Includes

• Reconciliation of Payroll Accounts: Match gross pay, deductions, and remittances to CRA/ARQ ledgers.

• Contractor vs. Employee Review: Apply the Wiebe Door test (control, tools, risk, integration) to defend independent status.

• Director Due-Diligence File: Build documented defense proving directors acted prudently.

• Remittance Timeline Reconstruction: Identify payment delays and request interest relief.

• Employee Classification Matrix: Separate employees, shareholders, and consultants for correct T4/T5/T5018 reporting.

Learning insight: CRA’s biggest weapon is your silence. Our defense is your documentation — organized, traceable, compliant.

Common Penalties in Payroll Audits

CRA penalties can be severe if discrepancies are found:

• 10% of missed remittances for first-time failures.

• 20% for repeated late remittances within 12 months.

• Interest compounded daily on all balances.

• Director’s Liability Assessment (ITA s.227.1) for unpaid source deductions.

Revenu Québec applies similar penalties for QPP, QPIP, and HSF under the Tax Administration Act.

Learning insight: Every day of payroll delay increases liability. CRA measures compliance not by intent — but by timestamps.

Real-World Case Study

A Montréal IT company underwent a CRA payroll audit after inconsistent T4 and PD7A records. Mackisen CPA discovered a data-export error in their payroll software that overstated wages by 3%. After reconciling and explaining the discrepancy, CRA withdrew the $45,000 proposed assessment.

Learning insight: Technology automates payroll — but only a CPA validates it. Errors happen; compliance proves good faith.

CRA vs. ARQ Payroll Audits — Key Differences

Learning insight: CRA and ARQ may share data but audit separately. Mackisen CPA builds one unified payroll compliance file that satisfies both.

SEO Optimization and Learning Value

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Learning insight: Payroll compliance content performs best online when it educates and empowers. Mackisen CPA blogs are designed for conversion and trust.

Preventive Payroll Strategies by Mackisen CPA

• Implement CPA-reviewed payroll controls and remittance checklists.

• Schedule automated CRA and ARQ e-payments before deadlines.

• Conduct annual payroll compliance reviews before T4 and RL-1 issuance.

• Train directors and HR on due-diligence responsibilities.

• Maintain six years of payroll records digitally for quick CRA response.

Learning insight: Payroll prevention saves both penalties and peace of mind. Mackisen CPA turns compliance into confidence.

Why Mackisen CPA Montreal

For over 35 years, Mackisen CPA Montreal has represented businesses of all sizes in payroll audits, CRA disputes, and director liability cases. We combine accounting accuracy with legal strategy — ensuring every deduction, credit, and remittance withstands audit scrutiny.
Our bilingual team works directly with CRA and Revenu Québec auditors, resolving issues efficiently while preserving professional relationships and credibility.

Learning insight: Payroll is the heart of compliance — when it’s wrong, everything else fails. Mackisen CPA keeps your payroll clean, compliant, and defensible.