Worker’s Compensation and Employer Obligations

Introduction
Understanding worker’s compensation and employer obligations is essential for every business operating in Canada—and especially in Québec, where the CNESST administers one of the strictest and most comprehensive workplace safety and injury compensation systems in the country. Worker’s compensation exists to protect employees who suffer work-related injuries or illnesses while protecting employers from lawsuits. In exchange, employers must comply with strict registration, premium payment, injury reporting and workplace safety standards. Failure to comply exposes employers to CNESST penalties, reassessments, legal claims, fines and criminal liability. This guide explains everything businesses need to know about worker’s compensation and employer obligations in Québec and across Canada.

Legal and Regulatory Framework
Worker’s compensation and employer obligations are governed by:

• CNESST (Commission des normes, de l'équité, de la santé et de la sécurité du travail) in Québec
• Workers’ Compensation Boards (WCB) in other provinces
• the Québec Occupational Health and Safety Act
• the Employment Standards Act
• federal labour laws for federally regulated industries
• the Income Tax Act (interaction with payroll)

In Québec, CNESST regulations require employers to:

• register their business as soon as they hire an employee
• classify their industry under the correct risk category
• pay annual CNESST premiums
• report wages accurately every year
• investigate and report workplace injuries
• provide modified duties when required
• maintain a safe work environment

Worker’s compensation and employer obligations extend beyond payroll and include safety, reporting and compliance responsibilities.

1. Registering with CNESST

Employers must register with CNESST:

• within 14 days of hiring their first employee
• even if employees are part-time or temporary
• regardless of wage level

Failure to register can result in:

• retroactive premiums
• penalties
• interest
• legal action

This is a core part of worker’s compensation and employer obligations in Québec.

2. CNESST Premium Calculations

Premiums are based on:

• total annual payroll
• industry risk classification
• employer’s history of workplace injuries
• CNESST rate adjustments

High-risk industries pay higher rates.
Incorrect classification leads to:

• audits
• retroactive payments
• sometimes a full reclassification at higher rates

Many employers seek Mackisen to avoid misclassification.

3. Reporting Workplace Injuries

When an employee is injured:

• employers must provide first aid
• complete and submit CNESST incident reports
• provide a “Return-to-Work” form (when required)
• cooperate with CNESST investigators
• track lost-time and modified duties

Failure to report injuries or cooperate with CNESST can result in:

• monetary penalties
• compensation refusal
• employer liability

Worker’s compensation and employer obligations require proactive reporting and documentation.

4. Modified Duty Obligations

Employers must offer modified duties when:

• the employee is medically capable of returning to light or partial work
• the duties fit within the employee’s physical limitations
• accommodations are possible without undue hardship

CNESST may penalize employers who refuse modified duties.

5. Workplace Safety Compliance

Employers must:

• maintain a safe workplace
• perform safety assessments
• provide protective equipment
• train employees on hazards
• implement prevention programs

Québec has some of the strictest safety obligations in Canada.
Failure to maintain safety standards can result in fines or criminal charges.

Key Court Decisions

Courts have ruled repeatedly on worker’s compensation and employer obligations:

• employers must ensure safe working conditions or face negligence penalties
• CNESST classification decisions can be appealed but require strong evidence
• modified duty refusal by an employer often results in CNESST sanctions
• misreporting wages leads to retroactive premium assessments
• employers are liable for failing to register for CNESST even if the mistake was unintentional
• Québec courts hold employers responsible for training and hazard assessment

These rulings demonstrate the importance of compliance.

Why CNESST and CRA Audit These Issues

Although CNESST handles worker’s compensation, CRA cooperates when payroll or classification issues overlap.

Audit triggers include:

• missing CNESST registration
• underreported payroll
• unsafe workplaces
• repeated injury claims
• employee complaints
• misclassified contractors
• missing injury reports
• inconsistent payroll vs CNESST filings
• incorrect industry classification

Understanding worker’s compensation and employer obligations reduces these risks.

Mackisen Strategy

Mackisen CPA offers a full system for worker’s compensation and employer obligations:

• registering businesses with CNESST
• determining the correct risk classification
• preparing accurate annual declarations
• reconciling payroll with CNESST filings
• supporting claims, injury reports and Return-to-Work requirements
• appealing CNESST decisions if wrongly assessed
• advising on modified duty compliance
• providing full audit defense
• ensuring payroll, QPP/QPIP and CNESST align perfectly

Our structured approach prevents penalties and ensures long-term compliance.

Real Client Experience

Many Québec employers come to Mackisen with CNESST issues:

• A manufacturing company was misclassified in a high-risk category. We appealed and reduced premiums by 40%.
• A construction employer failed to register CNESST for two years. We corrected filings and negotiated penalty relief.
• A retail store had repeated workplace injuries. We implemented a prevention program and reduced premiums.
• A tech startup failed to report an injury. CNESST imposed penalties. We resolved the claim and restructured reporting procedures.
• A company underreported wages, resulting in a major reassessment. Mackisen corrected payroll records and appealed the decision.

These real cases show why worker’s compensation and employer obligations must be taken seriously.

Common Questions

• Do all Québec employers need CNESST?
Yes—any employer with at least one employee.

• Are contractors covered by CNESST?
Yes, if misclassified—CRA and CNESST may treat them as employees.

• Is CNESST payroll separate from CRA payroll?
Yes—completely separate systems.

• Can CNESST premiums be refunded?
Only in classification or wage reporting error situations.

• Does CNESST audit companies?
Frequently—especially high-risk industries.

• Is modified duty mandatory?
Yes, when medically recommended.

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 dealing with CNESST classification, injury reporting, payroll reconciliation or workplace safety compliance, our expert team ensures precision, transparency and protection from audit risk. When assisting clients with worker’s compensation and employer obligations, Mackisen provides complete support—registration, prevention, reporting, payroll integration and audit defense.

69. Common CRA Audit Triggers and How to Avoid Them

Introduction
Understanding the most common CRA audit triggers and how to avoid them is essential for businesses, self-employed professionals, freelancers, real estate investors, incorporated professionals and taxpayers across Canada. The CRA uses advanced analytics, cross-matching algorithms, industry benchmarks and artificial intelligence to identify returns that appear unusual, inconsistent, risky or non-compliant. A CRA audit can be stressful, costly and time-consuming—especially if documentation is missing or errors have accumulated over the years. Québec taxpayers face additional scrutiny from Revenu Québec. This guide explains the most common CRA audit triggers and how to avoid them so you can protect yourself, minimize risk, and maintain full compliance.

Legal and Regulatory Framework
CRA and Revenu Québec audits are governed by:

• the Income Tax Act
• the Excise Tax Act
• Québec’s Taxation Act
• CRA’s audit and enforcement policies
• Revenu Québec’s audit guidelines
• court decisions defining taxpayer obligations

Taxpayers must:

• report all income accurately
• maintain proper records
• file consistently
• provide documentation upon request
• correct errors proactively

Understanding common CRA audit triggers and how to avoid them helps taxpayers remain fully compliant.

The Most Common CRA Audit Triggers

Below are the major red flags that cause CRA and Revenu Québec to initiate audits.

1. Large or Repeated Business Losses

The CRA questions whether the business has a reasonable expectation of profit.
Risk increases when losses offset employment income.

How to avoid it:
• Maintain strong documentation, business plans and revenue forecasts.

2. Claiming High Expenses Relative to Income

Common in self-employed returns (T2125).
Large vehicle, travel or home-office expenses create suspicion.

How to avoid it:
• Use accurate logs and keep all receipts.

3. Missing or Inconsistent Income Reporting

CRA cross-matches:
• T4, T5, T5008
• GST/HST filings
• bank deposits
• online platform data (Stripe, PayPal, Uber, Airbnb)

How to avoid it:
• Reconcile all revenue streams.

4. Cash-Heavy Industries

Restaurants, construction, retail, wellness, salons and contractors face elevated audit risk.

How to avoid it:
• Maintain detailed sales records.

5. Incorrect GST/HST or QST Filings

Misapplied tax rates, incorrect refunds, or mismatched GST/QST returns trigger audits.

How to avoid it:
• Ensure correct place-of-supply rules and ITC documentation.

6. Real Estate Transactions

Flips, assignments, new builds, rental conversions and principal residence exemptions.

How to avoid it:
• Document intent, usage, occupancy and contracts clearly.

7. High Vehicle Expenses

CRA audits mileage logs aggressively.

How to avoid it:
• Keep a contemporaneous logbook.

8. Lifestyle Does Not Match Reported Income

CRA analyzes social media, business visibility and bank activity.

How to avoid it:
• Maintain consistent personal and business financial records.

9. Large Charitable Donations

Especially first-time or unusually high claims.

How to avoid it:
• Keep official receipts and verify registered charities.

10. Paying Family Members

CRA checks if income splitting is legitimate.

How to avoid it:
• Ensure wages are reasonable and work is documented.

11. Payroll Issues

Incorrect CPP/QPP, EI/QPIP, taxable benefit reporting or remittances.

How to avoid it:
• Use structured payroll systems.

12. Sudden Revenue Drops or Spikes

Industry norms are used as benchmarks.

How to avoid it:
• Document reasons for fluctuations.

13. Cryptocurrency and Online Income

CRA audits digital-income sources heavily.

How to avoid it:
• Report all crypto trades and online platform income.

14. Offshore Accounts or International Transactions

Automatically flagged by CRA through information-sharing agreements.

How to avoid it:
• Ensure complete foreign-reporting compliance (T1135).

These are the most common CRA audit triggers and how to avoid them with proper documentation and filing consistency.

Key Court Decisions

Canadian courts consistently reinforce that:

• taxpayers must maintain adequate records
• CRA can use indirect income-verification methods
• mixed personal/business expenses are often denied
• the burden of proof lies with the taxpayer
• errors in GST/HST filings justify full audits
• repeated discrepancies justify expanded multi-year reviews
• Québec courts enforce even stricter standards

These rulings show why strong documentation is central to avoiding the most common CRA audit triggers.

Why CRA and Revenu Québec Audit Aggressively

Audit triggers exist because:

• government revenue depends on accurate reporting
• small businesses and self-employed taxpayers have higher error rates
• GST/QST misreporting is common
• real estate transactions often involve misclassification
• payroll is a major source of trust-fund errors
• CRA uses technology to detect abnormalities

Understanding the most common CRA audit triggers and how to avoid them provides strong protective measures for taxpayers.

Mackisen Strategy

Mackisen CPA provides a full risk-management system to help clients avoid CRA and Revenu Québec audits:

• reviewing past filings for inconsistencies
• ensuring accurate GST/QST and payroll systems
• preparing audit-proof documentation
• correcting issues proactively through voluntary disclosure
• monitoring industry benchmarks
• reviewing real estate transactions for proper classification
• ensuring payroll, T4/RL-1 and GST/QST filings match corporate tax returns
• creating strong documentation systems for expenses
• reconciling all online and digital revenue

This structured approach reduces exposure to common CRA audit triggers and how to avoid them.

Real Client Experience

Many clients come to Mackisen after receiving CRA audit letters due to common red flags:

• A consultant claimed excessive home-office and car expenses. CRA requested logs. We rebuilt proper documentation and secured most deductions.
• A Québec contractor under-reported revenue compared to GST/QST filings. Revenu Québec initiated an audit. Mackisen reconciled the discrepancies and minimized adjustments.
• A real estate investor misused the principal residence exemption. CRA reassessed. We restructured filings and reduced penalties.
• An e-commerce seller had large PayPal deposits not reflected in tax returns. We reconciled platform data and filed voluntary disclosures.
• A business’s payroll slips did not match T4/RL-1 summaries. CRA initiated a payroll audit. Mackisen corrected benefits and remittances.

These cases show how common CRA audit triggers appear in real life—and how early intervention prevents major liabilities.

Common Questions

• Can CRA audit multiple years?
Yes—usually 3 years, but unlimited if misrepresentation is suspected.

• Will incorporating reduce audit risk?
Sometimes—but compliance remains essential.

• Does CRA audit small businesses more often?
Yes—especially cash-heavy or service sectors.

• Do social media posts affect audits?
Yes—CRA can review lifestyle indicators.

• Is GST/QST a major audit trigger?
Yes—one of the biggest.

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 trying to prevent audits or handle one already in progress, our expert team provides precision, transparency and protection. When supporting clients with common CRA audit triggers and how to avoid them, Mackisen offers complete risk assessment, filing corrections, documentation systems and full audit defense.