Simply defined, a Trust Exam is when the Canada Revenue Agency sends someone out to look at how you’ve handled your Trust Money. That is, payroll and GST remittances that you’re holding in trust for those government taxes you owe.
Trust Exams are usually triggered for payroll issues, though they can be the result of GST issues as well.
They may be scary, but the you know there are penalties and interest coming.
If a Trust Examiner is sent out, it’s because the CRA has found some reason to come see you; some discrepancies in your T4s or remittances, for instance. So, when they notify you, you already know right there that you’ve done something wrong.
In my opinion, based on what I’ve seen in my years of experience as a Certified Professional Bookkeeper, there are four main reasons why a Trust Exam is issued:
- You’re not paying payroll and should be.
- They suspect you’re doing something wrong, for whatever reason.
- You’ve made noticeable modifications to a T4.
- You we them more than five thousand dollars.
What happens during a Trust Exam?
The Trust Examiner will usually look at records up to the last full month that remittances were do. They also look at all copies of your bank statements and everyone you’ve paid.
They assess those payees as payroll; if you’ve paid a subcontractor, you’ll need to provide the Subcontractor’s Agreement, as mentioned in a previous last blog.
They’ll look to ensure that you met the criteria for retaining the subcontractor, to make certain that your working relationship isn’t actually better categorized as that of employer and employee.
The Trust Examiner will then do their own calculation of the payroll information, providing you a copy, and imposing the penalty for what errors they find.
Trust Exams can also negatively impact not just the employer/business owner, but also the employees and subcontractors they’ve paid.
If there is an error concerning a T4, they’ll reissue a new T4 to the employee. In some cases, the employee may have to pay that money back – for instance, if they’re a single mother collecting the child tax credit – because it could impact any government money you’ve received.
Likewise, if they determine that a subcontractor you hired should be considered an employee, the subcontractor may have all their write offs will come back.
A Trust Exam isn’t a comfortable situation to be in, but dealing with angry employees, current or former, can make the circumstances even more unpleasant. If you’re able to withstand the CRA penalties, it won’t do your business or reputation damage -unlike those disgruntled workers could.
If you’re winging your way through payroll, aren’t confident in how you’re managing the responsibility, or suspect you may be doing something wrong, seek the professional advice of a Bookkeeper or Accountant, take a course, or read over those CRA guidelines one more time.
You don’t want to find yourself in this situation if you can help it.
Trust me on that.