Catching a Bookkeeper's Failure Before CRA Ever Did

The situation

Tharshini had run her pharmacy practice through a professional corporation for eleven years. The corporation collected HST (harmonized sales tax, the 13 percent tax charged on most goods and services in Ontario) on the portion of her billings that was taxable, and it deducted income tax, Canada Pension Plan contributions and Employment Insurance premiums from the wages of the two staff she employed. Both of those amounts belonged to the government the moment they were collected or withheld — the corporation was only ever holding them in trust until they were remitted, typically monthly.

Kajan had spent thirty years as a sales director before retiring the previous year. With more time on his hands, he started reviewing the household and corporate finances that Tharshini, busy with her practice, had left largely to a bookkeeper named Keisha for the better part of a decade. Keisha had been reliable for years, filing HST returns and payroll remittances on schedule and sending Tharshini a monthly summary. Kajan pulled the corporation's online CRA account to check the summaries against what had actually been filed, mostly out of curiosity about retirement planning.

What he found did not match. The corporation's CRA business account showed no HST returns filed for the last five reporting periods, and no payroll remittances for roughly the same stretch — close to two years. The monthly summaries Keisha had been sending Tharshini described amounts as remitted that CRA's own records showed had never arrived.

What the review found

Kajan brought the discrepancy to Treadstone Law before telling Tharshini's staff or contacting Keisha directly, wanting to understand the exposure first. Our review of the corporation's bank records and CRA account confirmed the gap: HST collected from clients and payroll deductions withheld from staff wages had been calculated correctly in the internal books, but the remittances themselves had stopped going out. The bookkeeper's monthly reports had continued regardless, showing figures that were never sent.

Separately, we learned Keisha had been managing a serious family health crisis during that period and appeared to have simply stopped keeping up, without telling either client. That mattered less for the amount owing — the money was owed regardless of why — and more for how CRA might treat the corporation once the shortfall came to light.

The total unremitted amount, once we reconstructed it from the corporation's records, came to roughly $210,000: about $140,000 in uncollected HST that had never been forwarded and about $70,000 in payroll source deductions withheld from staff but never sent. Under the Excise Tax Act, which governs HST, and the Income Tax Act, which governs payroll remittances, a corporation that fails to remit trust amounts on time is exposed to penalties calculated on the outstanding balance, plus interest that compounds from each missed due date. Had CRA discovered the gap first through an audit, we estimated penalties and accumulated interest could have added another $85,000 to $100,000 on top of the underlying $210,000 — pushing the total exposure toward the upper end of the roughly $150,000 to $400,000 range we were watching. No return had been filed late by a few weeks here or there; this was two years of silence, which is the pattern CRA's automated systems are built to flag once a business account goes quiet.

What we did

1. Froze further exposure immediately. Before anything else, we confirmed the corporation's payroll and HST collection were still functioning correctly going forward and that no further periods were about to lapse. Kajan and Tharshini took over the monthly filing checklist themselves for the interim, rather than leaving a gap while the rest was sorted out.
2. Reconstructed the full trust-account shortfall. We worked with the corporation's bank and payroll records to build a period-by-period accounting of every HST return and payroll remittance that had been calculated but not filed, so the disclosure to CRA would be complete and accurate rather than a partial correction that left room for a second discovery later.
3. Filed under CRA's voluntary disclosures program before any audit began. This program lets a taxpayer come forward with a correction to a past filing failure, on their own initiative, before CRA has contacted them about it. Coming forward first is the entire point: relief under this program is generally only available where CRA has not already started to ask questions. We filed the disclosure with the full HST and payroll history, the corrected returns, and payment of the underlying $210,000 in full.
4. Requested relief from penalties and interest on the corrected filings. A voluntary disclosure does not automatically erase penalties or interest — it opens the door to CRA reducing them, using the discretionary relief provisions built into both the Excise Tax Act and the Income Tax Act. We asked CRA to waive the late-filing and late-remittance penalties entirely and to reduce the interest that had accrued while the amounts sat unremitted, on the basis that the corporation had come forward voluntarily, corrected the full amount, and had no history of prior non-compliance.
5. Kept Keisha out of the corporation's filings going forward. Whatever the cause, someone with signing access to the corporation's CRA account had stopped remitting trust funds for two years without telling either client. We advised transitioning bookkeeping to a new arrangement with monthly, client-visible confirmation of every remittance actually filed, not just summarized.

The outcome

CRA accepted the voluntary disclosure. Because Kajan and Tharshini had come forward before any audit letter arrived and disclosed the complete shortfall rather than a partial one, the corporation qualified for relief on the penalty and interest side. CRA waived the late-remittance and late-filing penalties in full and reduced the accrued interest substantially, leaving the corporation to pay the original $210,000 in trust amounts plus a reduced interest charge, rather than the roughly $295,000 to $310,000 total that penalties and full interest would have added had CRA found the gap first.

The practical difference came down to timing. Nothing about the underlying tax owed changed — the corporation always owed that $210,000, because it was never the corporation's money to begin with. What changed was that Kajan's review caught the failure while it was still a correctable filing gap rather than an active CRA investigation. Once CRA opens a file on its own initiative, the same discretionary relief is far harder to obtain, because the taxpayer relief and voluntary disclosure programs are built to reward coming forward first, not responding after the fact.

Tharshini's practice continued without interruption through the process — payroll and client billing were never affected, since the correction happened entirely between the corporation and CRA. The new bookkeeping arrangement now gives both Kajan and Tharshini direct, monthly visibility into what has actually been filed with CRA, closing the gap that let two years pass unnoticed the first time.

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