CRA noted that after the completion of a ruling, a referral to the Trust Accounts Examination Division (often leading to a payroll audit) is not automatically sent. However, it is sent in situations such as where:
- the ruling changed the worker’s status from employee to self-employed, or vice versa;
- a related worker was determined to be dealing at arm’s length and, therefore, insurable, but no EI premiums had been remitted; and
- an employee relationship was confirmed but there were no source deductions remitted or T4 submitted.
When a referral is received, an examination officer will contact the employer for an appointment to review the payroll books and records. Deduction and remittances for the period covered by the CPP/EI ruling will be confirmed and validated.
The officer will also review CRA’s database to determine whether there are any outstanding GST/HST returns. If found non-compliant, the GST/HST books and records will also be reviewed.
ACTION ITEM: If CRA challenges the categorization of a worker (employee vs. contractor), keep in mind that the implications of a reclassification could be significantly greater than the costs associated with the individual worker.