CRA Trust Fund Penalties: What Happens When GST/QST, Payroll Deductions, or Other Trust Amounts Are Not Remitted — Enforcement, Director Liability, and Penalties (Montreal CPA Firm Guide)

Trust funds are the most aggressively enforced category of tax in Canada.
GST/QST collected from customers and payroll deductions withheld from employees do not belong to the business—they belong to the government and employees.
When these amounts are not remitted on time, CRA considers it a serious breach of trust.
As a result, CRA responds with its strongest tools:
• immediate collections
• wage garnishments
• bank account freezes
• accounts receivable seizures
• Federal Court certificates
• liens on property
• director liability assessments
• civil penalties
• in extreme cases, criminal prosecution

This guide explains how trust fund penalties work, why they are enforced so aggressively, and what steps Mackisen takes to protect businesses, owners, and directors.

Legal and Regulatory Framework

Trust fund enforcement comes from the Income Tax Act and the Excise Tax Act.
Under these laws, a business must:
• collect GST/QST
• remit GST/QST by the due date
• withhold payroll deductions (CPP, EI, income tax)
• remit payroll deductions on time
• maintain accurate books and records
• ensure trust funds are never used for other expenses

CRA may impose:
• interest
• late remittance penalties
• repeated failure penalties
• director liability assessments
• civil penalties for gross negligence
• criminal sanctions in extreme cases

Trust debts are legally considered “priority debts,” ahead of most other obligations.

Key Court Decisions

Courts consistently reinforce CRA’s strict authority over trust funds. Core principles include:
• the money is not the business’s property
• directors are personally responsible if trust funds are not remitted
• CRA may enforce without waiting for objections
• financial hardship is not a valid defence
• trust fund debts survive bankruptcy
• directors must prove due diligence, not CRA
• CRA does not need to prove intent
• penalties are mandatory when remittances are late

Courts provide near-total support for CRA in these cases, which is why professional defence is essential.

Why CRA Aggressively Enforces Trust Fund Debts

CRA sees unremitted trust funds as a major risk because businesses often use withheld money to cover cash flow shortages.
Triggers include:
• late GST/QST remittances
• late payroll deductions
• missing returns
• incorrect payroll calculations
• inconsistencies in GST/QST filings
• business reorganizations or dissolutions
• cash businesses with weak controls
• real estate contractors or subcontractors
• owners withdrawing funds while not remitting tax
• unreported sales or cash jobs

Revenu Québec also conducts parallel enforcement on QST and payroll remittances.

Types of Trust Fund Penalties (Deep Expansion)

1. GST/QST Late Remittance Penalties

CRA and RQ impose:
• interest
• late penalties
• repeated failure penalties
• audit-triggered assessments

These are some of the highest penalties in Canadian taxation.

2. Payroll Source Deduction Penalties

Penalties for payroll trust amounts escalate quickly:
• 3 percent for 1–3 days late
• 5 percent for 4–5 days late
• 7 percent for 6–7 days late
• 10 percent for more than 7 days late
• 20 percent for repeated failures

Payroll trust penalties are among the harshest in the tax system.

3. Director Liability Assessments

Directors are personally responsible for:
• unremitted GST/HST
• unremitted QST
• unremitted payroll deductions
• interest and penalties

Directors become jointly and severally liable with the corporation.

4. Trust Fund Reassessments

CRA may reassess:
• missing GST/QST periods
• underreported sales
• overstated ITCs
• subcontractor non-compliance
• payroll errors

These reassessments often lead directly to collections.

5. Criminal Penalties (Extreme Cases)

In serious cases, CRA may refer for prosecution if:
• GST/QST was collected but never remitted
• payroll deductions were withheld and used for other expenses
• substantial amounts are involved
• repeated non-compliance occurred
• fraudulent invoices were used

These cases are rare but very serious.

Immediate Financial Risks

Trust fund enforcement causes severe consequences:
• business cash flow collapse
• frozen bank accounts
• garnished wages
• seized receivables
• liens on business and personal property
• director liability assessments
• interrupted payroll
• supplier credit cuts
• reputational damage
• audits expanding to multiple years

Many businesses fail due to trust fund penalties.

Mackisen Strategy

Trust fund enforcement requires immediate, strategic intervention. Mackisen CPA has a dedicated protocol for GST/QST and payroll trust fund defence.

Step 1 — Urgent CRA Intervention

We contact CRA Collections the same day to:
• pause enforcement
• stop garnishments or freezes
• identify trust amounts outstanding
• verify missing remittances

This reduces immediate pressure.

Step 2 — Correct All Missing Filings

We fast-track:
• GST/QST returns
• payroll remittances
• T4 slips and summaries
• corporate T2 returns
• adjustments and corrections

Filing compliance is essential before negotiation.

Step 3 — Reconstruct Trust Amounts

We review and correct:
• payroll calculations
• GST/QST coding errors
• missing invoices
• subcontractor documentation
• ITC eligibility
• bookkeeping discrepancies
• double-counted transactions

This often reduces trust debt significantly.

Step 4 — Protect Directors

We determine:
• whether the due diligence defence applies
• whether the director liability period expired
• whether CRA followed proper procedure
• whether the assessment is incorrect

We prepare detailed defence packages for directors.

Step 5 — Negotiate with CRA

We negotiate:
• structured payment plans
• relief from penalties (where possible)
• freeze lifts
• flexible repayment schedules
• time extensions
• conditional arrangements
• removal of aggressive enforcement flags

CRA is more flexible when documentation is complete.

Step 6 — Long-Term Compliance Model

We implement:
• payroll controls
• GST/QST remittance calendars
• monthly compliance review
• internal accounting systems
• quarterly reconciliation
• CRA communication protocols

This ensures trust fund issues do not return.

Real Client Experience

A Montreal transport company failed to remit GST/QST during a cash shortage. CRA froze the business bank account and initiated director liability. Mackisen intervened, filed missing returns, corrected GST/QST errors, negotiated a freeze lift, and prevented the director liability assessment. The business recovered and avoided bankruptcy.

Another client, a construction firm, faced $87,000 in payroll trust penalties. Mackisen reconstructed payroll, identified calculation errors, reduced the trust debt significantly, and established a long-term compliance plan. CRA removed repeat failure penalties.

Common Questions

• Can CRA hold directors personally liable for GST/QST or payroll? Yes.
• Can trust fund debt survive bankruptcy? Yes.
• Can CRA freeze accounts for trust debt? Yes.
• Can CRA garnish clients for GST/QST amounts? Yes.
• Can CRA remove penalties? Sometimes, with taxpayer relief.
• Do objections stop trust fund collections? No.
• Can CRA prosecute for trust fund misuse? In extreme cases, yes.
• Can CRA lien my home for GST/QST debt? Yes.

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.