Do CPP and/or EI Rulings Trigger Payroll Audits?

In a June 7, 2019 Technical Interpretation, CRA commented on whether a CPP and/or EI ruling triggers follow-up assessments and reviews. These rulings often determine whether a worker is a contractor or employee, and therefore, whether EI and/or CPP should be submitted to CRA. They also often consider whether an employee that is a family member of the owner is earning insurable amounts. Rulings can be initiated by the worker, the business, or another party with an interest, such as the CRA.

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, referrals may be sent if:

• 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 there were no EI premiums being remitted to the CRA,

• and an employee relationship was confirmed, but there were no source deductions remitted to the CRA or no T4 was filed.

When a referral is received, an examination officer will contact the employer for an appointment to review the payroll books and records. Deductions and remittances for the period covered by the CPP and/or 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.