Waiving Penalties Stemming from Payroll Audits

On occasion, a business will be selected for a review of their books and records by the CRA.  This is called a payroll examination, and the goal is to ensure compliance with respect to deductions and remittances, for your payroll account.

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The officer who will be doing the examination will contact the employer to set up an appointment, which can also be handled by the employer’s payroll representative.  The examination may require documents to be sent to the officer, or the officer may choose to do an in-house examination.  After the examination is complete, the officer will provide the employer with a list of discrepancies and requirements for correction.  If this results in a tax bill you can’t pay, there may be a possibility of relief.

Waiving Penalties and Interest 

The Minister of Finance has the power to waive interest and penalties that are imposed on a taxpayer.  The law itself does not set out the conditions under which such a waiver should be granted; this at the discretion of the Minister.  That is, the Minister does not have to waive interest and/or penalties, no matter how equitable that might seem to be.

The CRA has published guidelines under which the Minister will entertain waiving interest and penalties. These fall under three categories: extraordinary circumstances, actions of the CRA and financial difficulty.

Extraordinary Circumstances

An extraordinary circumstance is generally some external influence, such as an Act of God, which causes the employer to fail to meet one of its responsibilities.  For example, a payroll employee may be on the way to the bank to deposit the payroll remittance and be involved in an accident which requires hospitalization.  If this results in the remittance being made late, the Minister will consider waiving interest and penalties that apply.

CRA Actions

Rarely, a failure to discharge responsibilities may result from an error on the part of the CRA.  If the employer can demonstrate that it relied on the CRA, or was otherwise unable to comply because of CRA actions, the Minister will consider waiving interest and penalties.

Financial Difficulty

Even more rarely, the Minister may consider waiving interest and penalties, where an employer can demonstrate that it is unable to pay, or that the payment will impose an undue economic hardship.