Understanding Trust Examinations and PIER Reviews
Two of the most serious payroll compliance issues Canadian businesses face are trust examinations and Pensionable and Insurable Earnings Reviews (PIERs). These are not routine administrative matters, they carry real financial consequences, including the potential for personal liability against business directors for unpaid source deductions. If your business employs staff, the CRA expects you to withhold Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax from employee wages, hold these amounts in trust, and remit them on time. When something goes wrong, trust examinations and PIER reviews are the enforcement tools CRA uses to recover what is owed. This article explains what each process involves, why they happen, how director liability attaches, and how to prevent problems before they arise.
Trust Examinations: What You Need to Know
What Is a Trust Examination?
A trust accounts examination (TAE) is a targeted review conducted by the CRA to verify that an employer is properly deducting, withholding, remitting, and reporting payroll source deductions. . The examination focuses on CPP contributions (including CPP2, the second additional tier), EI premiums, income tax deductions, and taxable benefits. Despite the formal name, a trust examination is not a full audit it is narrower in scope, concentrating specifically on payroll and GST/HST trust obligations rather than every aspect of your business’s tax affairs. The term “trust” carries legal weight. When you deduct CPP, EI, and income tax from an employee’s paycheque, that money no longer belongs to your business. The CRA is explicit: “You should hold these amounts in trust for the Receiver General and keep them separate from the operating funds of your business, until they are remitted to the CRA.” Treating these funds as working capital is one of the fastest paths to a director’s liability assessment.
Why Does CRA Conduct Trust Examinations?
The CRA selects accounts for examination based on risk factors, not at random. The most common triggers include late or missed remittances, discrepancies between T4 filings and remittance records, late or non-filing of information returns, worker misclassification (employees reported as independent contractors), employee disputes over reported amounts, and referrals from other CRA program areas or government departments.
The Trust Examination Process
The CRA follows a structured four-step process. Notification CRA contacts you by phone or letter that your account is under review. Document gathering :You have up to 15 days to collect requested books and records. Examination :Within 30 days, the officer reviews your records either in person or virtually. Results :Same-day findings for in-person examinations, or a statement of account within 15 days for correspondence-based reviews. During the examination, the officer will review employee income (including bonuses and taxable benefits), all deductions, T4 and T4A filings, remittance timing and accuracy, and whether workers are properly classified as employees or self-employed contractors. You must keep payroll records for six years from the end of the last tax year to which they relate. 1.4 CRA’s Powers and Penalties Under the Income Tax Act, Excise Tax Act, Employment Insurance Act, and Canada Pension Plan Act, CRA officers may enter premises, inspect records, require documents, make copies, and interview employees. Officers may also compare payroll records directly against bank deposits to verify that deducted amounts were actually remitted.
