Payroll Remittances Fell Behind. One Year Was Already Too Late

The situation

Devon had run a dental practice in Welland for close to a decade, and the last two years had been the busiest yet. A second treatment room opened, staffing grew to a dozen people between hygienists, an office manager and administrative support, and the practice's bookkeeping load grew with it. When the long-time office manager left partway through the expansion, payroll administration was folded into the accounting software along with everything else, handled in the gaps between patients rather than by a dedicated person.

Every pay period, income tax, Canada Pension Plan contributions and Employment Insurance premiums were deducted from employee paycheques, as required. Those amounts belong to the government from the moment they are withheld — an employer holds them in trust and is required to remit them to the Canada Revenue Agency on a set schedule, separate and apart from the practice's own operating funds. For a period of roughly twenty months, the deductions were withheld correctly on paper, but the remittances to the CRA fell behind, then stopped catching up. Renovation costs for the new treatment room, a slower-than-expected ramp-up in new patients and a run of unpaid staff leave all pulled at the same operating account, and the payroll remittance line was the one that quietly gave way each month.

Devon's spouse, Abdi, an investment advisor, first noticed something was off while helping consolidate the household's financial statements for a mortgage renewal. The payroll remittance account on the practice's books did not match what should have been owed against payroll actually run. A closer look confirmed it: the practice owed the CRA a substantial, uninterrupted trail of unremitted source deductions, and no one had been tracking the total or setting money aside to close the gap. By the time Devon called Treadstone Law, the shortfall had been building for the better part of two years without a single remittance catching the account back up.

What the review found

Devon came to Treadstone Law before contacting the CRA, wanting to understand the exposure before deciding what to do. Our team requested the full payroll history and reconstructed the remittance record month by month against what should have been due.

The shortfall itself came to roughly $360,000 in principal — deductions that had been withheld from employees but never sent to the CRA. On top of that sat two kinds of add-on cost. Failing to remit source deductions on time triggers a penalty, and the penalty rate increases for employers who have already been penalized for a prior failure within the same period — this was not a one-time miss, so the repeated-failure penalty applied for most of the shortfall. Interest accrues daily on both the unremitted amounts and the penalties themselves. Together, penalties and interest added roughly another $330,000 on top of the principal, bringing total exposure toward the upper end of what the practice could realistically absorb in one payment.

One detail changed the strategy. Reviewing the CRA correspondence Devon had been setting aside unopened, our team found a letter from several weeks earlier — the CRA's automated matching program, which compares the deductions reported on T4 slips against what was actually remitted, had flagged a discrepancy for the most recent tax year and requested a response. The CRA had already opened contact on that period. For every earlier period, the practice was still ahead of the CRA. For the most recent one, it was not.

What we did

1. Separated the disclosure period from the flagged period. The CRA's voluntary disclosures program offers relief from penalties, and in some cases partial interest relief, but only for disclosures made voluntarily — before the CRA has already contacted the taxpayer about the specific issue. Because the CRA's matching letter covered only the most recent tax year, everything before that year was still eligible. We drew a clear line and treated the two periods separately from the outset, rather than letting the flagged year contaminate the eligibility of the rest.
2. Filed a complete voluntary disclosure for the eligible periods. The application had to include full corrected remittance figures, an explanation of how the shortfall happened, and payment of the underlying principal — voluntary disclosure relieves penalties and some interest, but the trust money itself is always owed in full. We prepared the submission with the reconstructed payroll figures so there was no ambiguity for the CRA to question.
3. Responded to the flagged year on its own track. For the year the CRA had already contacted the practice about, we replied directly, confirmed the shortfall, and worked to establish the practice's cooperation and good faith — factors that matter for any discretionary relief the CRA might still consider, even outside the voluntary disclosures program itself.
4. Negotiated a payment arrangement for the full remaining balance. Paying everything at once would have forced Devon to draw down the practice's line of credit past what its lender was comfortable with. We negotiated a structured payment plan with the CRA's collections officers, spread over a period the practice could sustain from ongoing revenue rather than emergency borrowing.
5. Rebuilt the remittance process going forward. Devon's practice moved payroll onto a dedicated payroll service with automatic remittance, and hired a new office manager, Ifrah, to own the process and confirm each remittance clears on schedule, removing the manual step that had allowed the shortfall to develop in the first place.

The outcome

The result was a genuine compromise, not a clean win. For the periods covered by the voluntary disclosure, the CRA waived the repeated-failure penalty entirely and granted partial interest relief, cutting the add-on cost on that portion by more than half. For the flagged year, no relief was available — the principal, full penalty and full interest on that period stood as assessed, because the CRA had already opened the file before Devon came forward.

Combined, the total amount owed came down from roughly $690,000 as it stood before any relief to close to $520,000 after the disclosure and the negotiated response on the flagged year — still a serious number, but a meaningfully smaller one, and one the practice could pay down over the agreed schedule without a forced sale of equipment or a second mortgage on the practice premises. The payment plan let Devon keep the practice fully staffed and operating through the repayment period, with the monthly instalment set against the practice's actual cash flow rather than a figure the CRA's collections system generated on its own.

Devon later said the hardest part was not the money but the twenty months of not knowing the real number — and the reminder that the CRA's matching program had already been watching one piece of it before anyone called for help. Abdi, whose own work involves explaining risk to clients for a living, put it more bluntly: the gap between what the practice owed and what it had set aside had been growing in silence, and silence was the only thing that made it dangerous. Once the number was known and split into a period that could be fixed and a period that could only be managed, the practice had a plan it could actually follow rather than a debt it could only dread.

What you can learn from this