The Canada Revenue Agency (CRA) imposes significant fines – known as promoter penalties (formally known as third-party civil penalties) – on tax shelter promoters and advisors. These penalties target individuals who make false or misleading statements in tax schemes or who assist others in filing improper tax returns. Any person involved in developing or marketing a tax shelter can face steep penalties for false statements or misuse of the tax shelter identification number. In short, promoter penalties carry severe financial and reputational risks, making strict compliance and due diligence essential for anyone involved in tax shelter arrangements.

Promoter Due Diligence and Compliance Requirements

Promoters of tax shelters have important legal obligations under the Income Tax Act (Canada) (ITA). Two key compliance requirements are obtaining proper CRA registration and ensuring honest, well-founded representations:

• Tax Shelter Registration: Before selling, issuing, or accepting any investor money for a tax shelter, the promoter must register the tax shelter with the CRA and obtain a tax shelter identification number. In practice, this involves filing Form T5001 (Application for Tax Shelter Identification Number) to apply for an ID number. If a previously issued identification number becomes invalid or expires (for example, if the shelter is offered in a new calendar year), the promoter must apply for a new number. According to subsection 237.1(4) of the ITA, no sales or contributions toward a tax shelter can occur until the CRA has issued a valid identification number for that shelter. Failing to register on time can not only invalidate investors’ supposed tax benefits (the CRA will deny tax deductions or credits for unregistered shelters), but also expose the promoter to significant penalties (discussed further below).
  
• Truthful Marketing and Advice: Promoters must represent both the benefits and risks of tax-saving arrangements truthfully. Proper due diligence means confirming a scheme’s legality and not making statements without a factual basis. For instance, some promoters might tout a plan as “CRA-approved” simply because it has an official tax shelter number – but the CRA explicitly warns that having a tax shelter identification number does not in any way confirm that the shelter is legitimate or that the promised tax benefits will be allowed. In short, due diligence and honesty are key – a promoter should be able to demonstrate that they exercised care and were not willfully blind to the scheme’s faults (penalties under the third-party rules apply if the promoter “knows or would reasonably be expected to know, but for circumstances amounting to culpable conduct” that a statement is false).

Understanding Consequences for False Tax Schemes and Non-Compliance

Penalties for promoting false tax schemes in Canada can be substantial. The CRA has shown zero tolerance for flagrant abuses, actively auditing tax shelter promoters to enforce the rules. The following are key penalty provisions that promoters and advisors need to know:

• False filings or unregistered sales: If a promoter files false or misleading information in a tax shelter application (Form T5001) or as a principal/agent sells or accepts funds for a tax shelter before obtaining a valid ID number, they could be liable to a penalty equal to the greater of $500 or 25% of all amounts received or receivable in respect of the tax shelter before the proper information is filed or the number is issued.
  
• Failure to provide the tax shelter ID number: If a promoter fails to include the tax shelter identification number on any statements or forms where it is required (for example, on official donation receipts or investor statements), the CRA can assess a penalty of $100 for each such failure.
  
• Providing an incorrect ID number: Knowingly providing a false or incorrect tax shelter identification number is an offense. If convicted, the promoter faces a fine of 100% up to 200% of the cost of the tax shelter interest, and/or imprisonment for up to two years. In other words, giving a fake or invalid shelter number can lead to criminal prosecution – with the possibility of jail time in addition to a potentially massive fine (equal to the full amount invested, doubled in the worst case).
  
• Misrepresentation in tax planning (“Planner Penalty”): Under the third-party penalty rules (section 162.3 of the Income Tax Act (Canada)), the CRA can impose civil penalties on promoters or planners who knowingly or in circumstances amounting to culpable conduct make or support false statements that could be used by another taxpayer to obtain an improper tax benefit. In these cases, the minimum penalty is $1,000. If the false statement was made in the course of a planning or valuation activity, the penalty increases – up to a maximum of the total of all the person’s gross entitlements (i.e., all fees, commissions, or benefits earned, whether received or not) that the person earned from the scheme. This is often referred to as the “planner penalty.” In practical terms, the penalty can equal all the income the promoter or planner obtained from the abusive arrangement.
  
• False statements in tax preparation (“Preparer Penalty”): Similarly, if a tax preparer or other advisor makes or contributes to a false statement in a taxpayer’s return – knowingly or under circumstances of culpable conduct – a penalty can apply even if the false statement was never actually filed, or even if no fee was charged. The preparer penalty is a minimum of $1,000. The maximum penalty is determined by a formula: it is capped at whichever of the following is less – (i) the penalty that the taxpayer would have been liable for if the taxpayer had made the false statement in their return (generally, the taxpayer’s gross negligence penalty, which is 50% of the understated tax), or (ii) $100,000 plus the preparer’s gross compensation related to the false statement. This “preparer penalty” can be applied regardless of whether the false statement ultimately gets used in a filed return and regardless of whether the preparer actually received payment – the mere act of knowingly (or recklessly) facilitating a false statement is enough to trigger the penalty.

Tax professionals have noted that the magnitude of these third-party penalties can approach or even exceed typical criminal fines for tax evasion. For example, a planner or preparer can be hit with penalties reaching into six or seven figures, even though these are not prosecuted as crimes. Moreover, beyond civil penalties, the most egregious cases may lead to criminal charges. The CRA has warned that unscrupulous scheme promoters can face prosecution for tax evasion or fraud – if convicted of tax evasion, an individual may be fined up to 200% of the taxes evaded and sentenced to up to 5 years in prison. In short, penalties for false tax schemes can threaten both your finances and your personal freedom.

CRA Enforcement and How Taxpayer Law Can Help

The CRA actively targets tax shelter schemes and their promoters through specialized audit and enforcement programs. In recent years, the agency has increased the number of audits focused on tax shelter promoters, advisors, and participants to discourage aggressive tax schemes. (Notably, over 850 such audits were completed in 2023–24, resulting in approximately $101 million in taxes and penalties assessed. These audits often arise from mandatory disclosures – such as tax shelter registration filings or reportable transaction reports – that alert the CRA to potentially abusive arrangements. Once the CRA initiates an audit of a promoter or a suspect tax scheme, the process can be intense. Auditors will enforce the rules rigorously, and in rare cases they may refer the file for criminal investigation. If you are a promoter or advisor caught up in a CRA audit, it’s critical to respond promptly and strategically.

Taxpayer Law provides sophisticated legal advice in these complex matters. Our firm’s team of tax lawyers (based in Toronto and Ottawa) has experience dealing with CRA promoter audits and fighting third-party penalties. Fighting a promoter or preparer penalty often involves nuanced legal and factual arguments – from technical interpretations of the Income Tax Act (Canada) to establishing that you took proper precautions in good faith. Early intervention by knowledgeable counsel can significantly improve your outcome, whether it’s negotiating a favorable settlement or mounting a full legal challenge. If you are facing a CRA promoter penalty or related enforcement action, don’t wait. Contact our tax lawyers for a confidential consultation.

We appreciate the contribution of Sreyoshi Monoj in the development of this article.

Multinational companies operating in Canada must navigate complex transfer pricing rules to satisfy the Canada Revenue Agency (CRA). These rules follow the OECD’s arm’s length principle, meaning transactions between related entities must be priced as if the parties were unrelated. Non-compliance can trigger costly audits, adjustments, and penalties. This article summarizes the CRA’s expectations around intercompany pricing under Canadian federal law. At Taxpayer Law, our experienced tax lawyers in Toronto regularly advise corporate tax teams on transfer pricing compliance and represent businesses in CRA disputes.

Multinational corporations with Canadian operations must carefully comply with federal transfer pricing rules under Section 247 of the Income Tax Act. Prices for goods, services, royalties, or loans between a Canadian company and its foreign affiliate should match what independent parties would agree to.

Accepted Transfer Pricing Methods

The CRA recognizes the same methods set out in the OECD Guidelines. These include traditional transaction methods—Comparable Uncontrolled Price, Resale Price, and Cost-Plus—and profit-based methods such as the Transactional Net Margin Method and Profit Split Method.

Taxpayers must select the most appropriate method based on available data, with a preference for traditional methods where reliable comparables exist. The reasoning and calculations must be documented so that the CRA can see how arm’s length pricing was determined. Documenting the chosen method’s rationale is important, as contemporaneous documentation should detail the data and methods used in determining the transfer price

Documentation Requirements

The CRA expects taxpayers to prepare documentation proving “reasonable efforts” were made to price related-party transactions appropriately. The due date to prepare or obtain contemporaneous documentation is the filing-due date for the corporation, trust, individual or partnership’s tax return. 

Taxpayers must file Form T1134, Information Return Relating to Controlled and Non-Controlled Foreign Affiliates for each foreign affiliate of the taxpayer. Form T106 is also to be a requirement where a reporting person or partnership reports its non-arm’s length activities with non-residents. Failure to accurately disclose required information, falsify statements or inadequately maintaining documentation can lead to penalties under the Income Tax Act. 

Adjustments and Penalties

If the CRA concludes that intercompany prices do not reflect arm’s length terms, it can make transfer pricing adjustments under subsection 247(2). This can increase Canadian tax liability significantly. The penalty regime also reinforces the importance of documentation. Taxpayers face severe transfer pricing penalties as it is equal to 10% of certain adjustments made under the Income Tax Act. Adequate contemporaneous documentation will typically prevent such penalties, as the law requires reasonable efforts to documentation.

CRA Audits and Dispute Resolution

Transfer pricing is a priority area for CRA audits, especially where transactions involve intellectual property, payments to low-tax jurisdictions, or management fees. The CRA can reassess tax returns within three or four years, depending on the taxpayer. This period is extended to seven years for transactions involving a non-arm’s length non-resident. 

If the CRA makes adjustments, taxpayers may file a Notice of Objection to challenge the reassessment. If unresolved, the dispute can proceed to the Tax Court of Canada. Relief from double taxation is often pursued under Canada’s Mutual Agreement Procedure (MAP) provisions in its tax treaties, where Canadian and foreign authorities work together to settle the issue. For companies seeking certainty, the CRA also offers Advance Pricing Arrangements (APAs), which allow taxpayers to agree in advance with the CRA on a transfer pricing methodology for future years.

Best Practices for Multinationals

Effective transfer pricing compliance requires more than simply meeting filing deadlines. Companies should establish robust policies and consistent pricing methods, regularly benchmark intercompany pricing against industry data, and carefully document high-risk transactions such as royalties, management fees, and restructurings. APAs should be considered where ongoing certainty is valuable.

Contact our firm to learn how our experienced tax lawyers can help safeguard your business against transfer pricing risks and provide certainty in your Canadian operations.

We appreciate the contribution of Gurleen Ghotra in the development of this article.

Selling a home in Canada involves crucial tax considerations – particularly the principal residence exemption (PRE), which can eliminate or reduce capital gains tax on the sale of a qualifying principal residence. If a property meets the principal residence criteria for the years you owned it, the resulting capital gain can generally be excluded from your taxable income. This guide explains the PRE rules, how to claim the exemption correctly, the reporting obligations, key qualification requirements, partial‑exemption scenarios, and common CRA audit triggers related to real estate. Understanding these rules helps you avoid costly mistakes and stay compliant.

What is the Principal Residence Exemption?

The PRE is an income‑tax mechanism that can exempt the capital gain realized on the sale (or deemed sale) of your principal residence, provided the conditions are met. Broadly speaking, the exemption applies for each year the property is designated as your principal residence. For 2016 and later years, your return must include basic information (year of acquisition, proceeds, and a description) on Schedule 3; for 2017 and later, individuals also complete Form T2091(IND).

Only one property per family unit per year.

For 1982 and later years, you can designate only one home as the principal residence of your family unit – generally you, your spouse or common‑law partner, and unmarried children under 18 – for each tax year. If you own, for example, a city home and a cottage, only one may be designated for a given year. Planning the designation across years can help maximize the exemption.

Who must live there and what qualifies as a property?

You must own the property (alone or jointly), and it must be ordinarily inhabited at some time during the year by you, your spouse/common‑law partner (current or former), or your child. Short periods of occupancy can be enough. Qualifying properties include a house, condominium, cottage, an apartment (including in a duplex), a trailer/mobile home or houseboat, a leasehold interest in a housing unit, and a co‑op share acquired to secure a right to inhabit a unit. Land counts too, but generally only up to ½ hectare (1.24 acres) unless more is necessary for the use and enjoyment of the residence (e.g., municipal minimum lot size).

CRA Principal Residence Reporting Obligations

For 2016 and later tax years, a sale of your principal residence must be reported on Schedule 3 to claim the exemption. For 2017 and later, individuals must also include Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). Additionally, there is Form T1255 – this form is intended exclusively for use by the legal representative of a deceased individual.

CRA will allow the PRE only if the disposition and designation are reported as required. If you forget to designate, ask CRA to amend your return; late designations can be accepted, but the penalty is the lesser of $8,000 or $100 per complete month from the original due date to the date CRA receives a satisfactory request.

Principal Residence Designation & Residency

To claim the exemption on sale, designate the property as your principal residence for each year you wish to shelter, and ensure no other property was designated by anyone in your family unit for those years. In general, a year can be included in the formula only if you were resident in Canada at some time during that year.

CRA Real‑Estate Audits and Common Triggers

• Frequent sales / flipping:

Effective January 1, 2023, gains on dispositions of a housing unit or a right to acquire one (e.g., an assignment) held for less than 365 days are deemed business income (no PRE; loss deemed nil) unless a listed life‑event exception applies. Even beyond 12 months, CRA may assess business income depending on intent and conduct.

• Multiple designations / ineligible use:

A common issue is attempting to designate multiple properties for the same year within a family unit, or claiming PRE on a property that was not ordinarily inhabited (e.g., held mainly for rental/investment despite brief occupancy). The onus is on the taxpayer to support the designation with facts.

• Unreported gains or rental income:

Dispositions must be reported. CRA also targets unreported assignment sales and unreported rental income (for suites or secondary properties).

• GST/HST and new‑home rebates:

If you buy or build a new or substantially renovated home and claim the GST/HST New Housing Rebate, CRA may verify that it was intended as your (or a relation’s) primary place of residence. In some cases, if you’re effectively a “builder” for GST/HST purposes (e.g., you built with an intention to sell), you must collect/remit GST/HST on the sale.

Need Help? Contact Taxpayer Law for Assistance

Navigating the principal residence exemption and related tax rules can be nuanced. Taxpayer Law – a team of experienced Canadian tax lawyers located in Toronto and Ottawa – can assist with your tax dispute with the CRA, collections and voluntary disclosure matters. Contact us for a confidential consultation.

Under Canadian tax law, failing to report all your taxable income – whether by accident or on purpose – comes with serious consequences. The Canada Revenue Agency (CRA) actively monitors and cross-checks tax filings to catch undeclared income. If you discover that you left income off a past return, it’s crucial to address the issue proactively to minimize penalties and legal risks.

What Is Unreported Income?

Unreported income refers to any taxable earnings that were omitted from your tax return. This can include cash payments (like tips or under-the-table wages), self-employment or freelance income, rental income, and investment gains that you did not declare. In short, if an amount was taxable but not disclosed to the CRA on your return, it counts as unreported income – even if the omission was an oversight. Failing to report required income, regardless of intent, is taken seriously by the CRA.

How the CRA Detects Unreported Income

The CRA uses various methods to detect undeclared income. According to the agency’s 2022+ Underground Economy Strategy, data analysis is a key tool – the CRA can cross-reference tax returns against third-party information sources to find inconsistencies. For example, they will match the income you report with records from employers (T4 slips), banks and investment firms (T5 slips), payment processors, and other institutions to see if anything was left out.

Beyond automated data matching, the CRA also initiates targeted reviews or full audits when something raises a red flag. Auditors look for signs of income that do not align with what was reported. Additionally, tip-offs from the public help the CRA find unreported earnings – anyone can anonymously report a suspected tax evader through the CRA’s informant Leads Program. All of these methods contribute to the CRA’s strict enforcement against unreported income.

Penalties for Unreported Income

Penalties for not reporting income are harsh for both individuals and corporations, even if the omission was unintentional. The CRA will re-assess your past returns to collect any unpaid taxes plus interest. On top of that, additional financial penalties may apply, including:

• False statement or gross negligence penalty: If the CRA determines that you knowingly (or through gross negligence) made a false omission of income on your return, they can charge a penalty equal to whichever is greater: $100 or 50% of the understated tax on the unreported amount. This penalty is supposed to  apply in the most egregious cases of deliberate underreporting or serious carelessness. However, in practice, the CRA regularly and incorrectly applies this penalty to most unreported income it discovers.
  
• Repeated failure to report income penalty: If you fail to report income of $500 or more on your return more than once within a four-year period, the CRA can impose a penalty equal to whichever is less: 10% of the unreported income or 50% of the tax owed on that amount. In other words, a repeat offense of missing significant income triggers an extra penalty in addition to paying the tax owed.

These penalties are applied  in addition to paying the taxes you owe (with interest). As such, even minor omissions can have steep  financial repercussions.

Correcting Unreported Income Errors

Fortunately, there may be a way to correct previously unreported income and mitigate the consequences. The key is to act voluntarily before the CRA comes calling – coming forward on your own can significantly reduce penalties and interest. Depending on your situation, you have a few options to fix the error:

• Voluntary Disclosures Program (VDP): This CRA program allows taxpayers to proactively disclose unreported income or other filing errors. If you come forward before the CRA contacts you, a VDP submission can eliminate penalties and may even grant partial interest relief on the owed taxes. You may be required to pay all taxes owing (and any interest not waived), and your disclosure must be complete and truthful. The CRA generally only gives one chance at the VDP per taxpayer, so it’s important to do it right the first time.
  
• Request Penalty or Interest Relief: If you cannot use the VDP (for example, the CRA has already begun an audit or you’ve previously made a disclosure) and an adjustment won’t suffice, you can apply for taxpayer relief to cancel or waive penalties and interest. The CRA will consider waiving these charges if you can show that the failure to report was due to circumstances beyond your control (such as a serious illness or natural disaster). You must make the relief request within 10 years of the tax year in question. This is essentially a last resort – relief is granted case-by-case and is not guaranteed, but it can provide forgiveness of penalties/interest in extraordinary situations.

No matter which route you take, acting before the CRA contacts you is far more favorable than waiting for them to discover the unreported income. Voluntarily coming forward shows good faith and can significantly lessen the financial fallout.

Get Professional Help with Unreported Income Errors

Dealing with unreported income after the fact can be complex and stressful. It’s often wise to seek professional guidance rather than trying to navigate the process alone. Our experienced tax lawyers at Taxpayer Law have helped many clients correct unreported income issues while minimizing penalties. We understand the CRA’s programs and procedures – from Voluntary Disclosures to taxpayer relief requests – and can guide you through the steps to compliance. Contact Taxpayer Law today for expert advice and to ensure you are fully compliant with your tax obligations going forward.

We appreciate the contribution of Simran Mann in the development of this article.

Correctly distinguishing between an employee and an independent contractor is critical for businesses and workers. Misclassifying someone can trigger serious consequences – retroactive CPP/EI payroll assessments, income tax withholdings, penalties and interest. In short, getting it wrong is costly, so it’s essential to understand the rules and get it right from the start.

Why Worker Classification Matters

• Payroll compliance: Employers must withhold and remit income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums for employees. If a worker is truly a contractor, no such payroll deductions are required – the contractor handles their own tax filings. Misclassification (treating an employee as a contractor) means the employer could be on the hook for the missed deductions (both the employer’s and employee’s share) plus interest and penalties.
  
• Entitlement to benefits: Employees are protected by employment standards laws and could be entitled to things like minimum wage, paid vacation and overtime pay. Independent contractors are not covered by these statutory benefits. In other words, a genuine contractor isn’t owed vacation pay, overtime, or termination notice under employment standards legislation.
  
• Canada Revenue Agency (CRA) enforcement: The CRA can review a work arrangement at any time and issue a binding decision (CPP/EI ruling) on a worker’s status. Either the payer or the worker can proactively request such a ruling. If the CRA finds an employment relationship where a business treated someone as a contractor, CRA could assess the employer for any unremitted CPP contributions and EI premiums (often going back years), along with applicable taxes, penalties, and interest.

The CRA’s Two-Step Test for Employee vs. Contractor

Outside of Quebec (which has its own test), worker status in Canada is determined by common-law principles. The CRA and the courts look at the total relationship between the worker and the payer, using a two-step approach:

Step 1: Intention of the parties. Examine what the worker and the payer intended when they entered into the relationship. Did they intend to create an employment arrangement (“contract of service”) or an independent business arrangement (“contract for services”)? A written agreement can reflect this intention (e.g. labeling the worker an “independent contractor”), but it’s not decisive if the actual work conditions tell a different story. In some cases the intent is clear and mutual; in others, the two sides may disagree or have never explicitly discussed it. The stated intent is only one factor and cannot override the reality of how the work is carried out.

Step 2: Reality of the relationship. Regardless of what the parties call the relationship, the actual working conditions must align with that characterization. The CRA examines several key factors to see if, in practice, the worker is operating their own independent business or functioning as part of the payer’s business. The main factors (outside Quebec) include:

• the degree of control the payer has over the work;
  
• the worker’s ownership of tools and equipment used;
  
• whether the worker can subcontract work or hire assistants;
  
• the worker’s chance of profit and risk of loss in the arrangement;
  
• the worker’s responsibility for investment and management in the business; and
  
• any other relevant details (e.g. whether there is an exclusive relationship, how integral the worker’s role is to the payer’s business, etc.).

No single factor is determinative – all factors must be weighed together to decide if the worker is in business for themselves or is effectively an employee. The table below summarizes these factors and how they typically indicate either an employment relationship or an independent contractor relationship:

Factor	Indicates Employee if…	Indicates Contractor if…
Control	The payer has the right to direct how, when, and where the work is done. The worker is expected to follow the payer’s instructions and may need permission to work for others.	The worker is free to organize their work – deciding how, when, and where to do the job. They can generally accept or decline assignments and often work for multiple clients.
Tools & Equipment	The payer provides the tools, equipment, and resources needed for the job, or reimburses the worker for such costs. The payer also covers maintenance, insurance, etc. on those tools.	The worker supplies and maintains their own tools, equipment, and workspace at their expense. Any significant capital items (machinery, technology, office space) are purchased or leased by the worker.
Subcontracting	The worker must personally perform the services and cannot hire assistants or subcontract the work to others. The relationship is based on the individual doing the work.	The worker has the ability to hire assistants or subcontract parts of the work to others. They cover the cost of any helpers and manage their contributions as part of running their own business.
Financial Risk	The worker has little financial risk: they have few (if any) unreimbursed expenses. They typically earn a fixed wage or salary (steady pay) and are not responsible for operating losses.	The worker faces financial risk in the enterprise. They incur ongoing business expenses (equipment, home office, liability insurance, etc.) without guarantee of reimbursement, and they may incur a loss if their costs exceed their revenue.
Investment & Management	The worker has no capital investment in the payer’s business and no business presence of their own (no business premises, no employees of their own). They do not actively manage an independent business – they simply perform work as instructed.	The worker has made investments in their own business (such as office space, vehicles or heavy equipment, staff or subcontractors). They manage some or all aspects of delivering the services as a business owner would, exercising decision-making beyond just doing the assigned work.
Opportunity for Profit	The worker’s compensation is fixed – often an hourly, weekly, or salaried rate. There is little opportunity for additional profit beyond perhaps a performance bonus or commission. The worker’s income is relatively secure and does not directly depend on managing costs.	The worker has the opportunity to earn profits by working smarter or more efficiently. They can increase their income by taking on additional projects or clients, negotiating higher fees, or reducing expenses. In essence, they can realize a business profit (or loss) based on how they operate.

In addition to the above, the overall integration of the worker into the payer’s business could also be considered. If a worker is deeply integrated into the company’s operations (indistinguishable from regular employees), that leans toward an employment relationship. If the worker operates distinctly (e.g. under a separate business name, offering services to the market), that leans toward an independent contractor status. All factors must be examined together to get a full picture.

Tax Obligations

Worker classification also affects how taxes are handled:

Employees: When a worker is an employee, the employer is responsible for payroll deductions at source – this means the employer withholds the employee’s income tax, CPP contributions, and EI premiums and remits them to the CRA (along with the employer’s share of CPP/EI).

Independent Contractors: A genuine contractor is considered self-employed for tax purposes. They pay their own taxes – no income tax or EI/CPP is withheld at source by the payer. Instead, the contractor must report business income on their tax return and remit both portions of CPP contributions themselves (the equivalent of both employer and employee CPP) when they file taxes. EI premiums are generally not required for self-employed individuals.

Tax Consequences of Misclassification

If a business incorrectly treats an employee as an independent contractor, the retroactive costs and penalties can be substantial. The employer can be ordered to pay all back CPP and EI contributions that should have been made, for both the employer’s and employee’s portion. The CRA will also assess any overdue income tax that wasn’t withheld. 

Penalties can be added – generally 10% of the unremitted amounts, rising to 20% for repeat or gross negligence cases – plus compound daily interest on the entire balance. In essence, the employer might have to pay several years’ worth of CPP/EI premiums and taxes, with interest and hefty penalties, because they failed to remit them when due.

Given these serious repercussions, it’s clear that prevention is far better than cure when it comes to worker classification issues.

Need Help?

Worker classification can be complex. Taxpayer Law – a team of experienced tax lawyers in Canada (with offices in Toronto and Ottawa) can assists payers (businesses) with all aspects of this issue. Contact us for a confidential consultation.

We appreciate the contribution of Gulshakh Gill in the development of this article.