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To get ready for a payroll audit in Canada, make sure your payroll records match what you remitted and what your T4 slips say, and keep them for six years. The CRA calls its version a payroll examination, and the main thing it checks is whether you deducted, remitted and reported the right amounts.
What does the CRA check in a payroll audit?
A payroll examination looks at whether income tax, CPP contributions and EI premiums were properly deducted, remitted and reported, and whether all income and taxable benefits appear on the slips. The CRA’s trust accounts examinations page adds that the same review can cover GST/HST you collected and whether workers were classed correctly as employees or contractors.
It can start after a referral, or a file can be picked at random. The CRA’s webinar on the subject lists missing remittances, a gap between what you remitted and what you reported, unreported taxable benefits and worker complaints about T4 slips as reasons.
Contact comes by letter or phone to set up a meeting, and sometimes you send records electronically through a CRA portal instead. How it selects files isn’t spelled out anywhere official, so there’s no use guessing at it.
Which records should be ready?
The same page lists what officers usually ask for. Keep these together in one place.
- Salary and wage journals, and your T4 and T4A slips
- Bank statements and cancelled cheques
- Financial statements and the general ledger
- Payroll forms such as TD1s
- Records of taxable benefits
- Employment contracts and records showing whether a worker is an employee or a contractor
Records must be kept for six years from the end of the last tax year they relate to, and the CRA’s webinar says an officer can ask to see them any time in that period. Officers typically look at the current and prior year first.
What should you do the day the letter arrives?
Read it twice. Note the officer’s name, your account number, the periods under review and any date they give you. Then pull those periods first, not everything you own. Line up each pay run against the bank debit for the matching remittance, and set aside anything you can’t explain yet so you can sort it out before the meeting rather than during it.
If a record is missing, say so plainly. A payroll register that was rebuilt from bank statements and labelled as such is far better than one that quietly pretends to be original.
Does your payroll add up? A quick test
Pick one employee and rebuild a pay period by hand. Here is what the 2026 rates give on a $100,000 wage in Ontario, worked out from the published CPP and EI rates and maximums.
| Item | Employee share | Employer share |
|---|---|---|
| CPP and CPP2 for the year | $4,646.45 | $4,646.45 |
| EI for the year | $1,123.07 | $1,572.30 |
So you remit $11,988 for CPP and EI on that one person, before income tax withheld. That’s about $999 a month on average, though CPP stops once the annual maximum is reached, so the real months aren’t identical. The employer pays 1.4 times the employee’s EI premium. If your remittance for a full-year employee is far from that, ask why before the CRA does.
The payroll deductions calculator gives the employee side for any province. For pay that changes, test overtime pay, vacation pay and bonuses the same way, since those lines often break a tidy pattern.
What goes wrong most often?
The CRA doesn’t publish a ranked list of errors, so this is what the examination description itself points to.
First, remittances that don’t match slips. Discrepancy notices go out when the amounts you remitted differ from those on the slips. Second, benefits. Taxable benefits that were never added to an employee’s income show up in an examination. And third, worker status. Officers ask for records on whether workers are employees or contractors.
Late remittances are a fourth. The penalty is 3% if the money is one to three days late, 5% for four or five days, 7% for six or seven days, and 10% beyond that, according to the CRA’s employers’ guide.
Mistakes in hours are another trap. Overtime, holiday and vacation pay follow provincial rules, and they change the gross figure you deduct from. Check the minimum wage calculator and the rules in your own province.
What happens after the audit?
The officer goes over findings with you in person or by phone and sends a statement of account that explains any penalties, interest and T4 amendments. Amounts owing are due right away, though the CRA says payment arrangements may be possible. A Notice of Assessment follows, and if you disagree with it you have 90 days from the assessment date to file a formal objection, according to the CRA’s webinar.
The CRA may also correct your T4 slips. You then have to give amended slips to the workers affected, and they may need to ask for their own returns to be reassessed. The CRA suggests they wait 60 days after getting the slips. The guide to dealing with the CRA covers letters, reviews and payment plans more broadly.
Penalty amounts for an examination depend on what the officer finds, so read your own notice for those.
Where this comes from
The audit process comes from the Canada Revenue Agency‘s payroll compliance and enforcement pages, its trust accounts examinations page and its payroll examination webinar. The CPP and EI figures are the 2026 rates and maximums on CRA and Employment and Social Development Canada pages. The page isn’t legal or accounting advice, and the CRA’s own notices govern your case.
Frequently asked questions
What does the CRA check in a payroll audit?
Whether income tax, CPP and EI were properly deducted, remitted and reported, and whether all income and taxable benefits are on the slips.
How long should I keep payroll records?
The CRA's payroll examination webinar says six years from the end of the last tax year the records relate to.
Can I dispute the results?
If the CRA issues a Notice of Assessment, you can dispute it through its formal objection process.
Who gets affected if the T4 slips change?
Workers do. You must give them the amended slips, and they may need to ask the CRA to reassess their returns.
Are there penalty amounts on this page?
No. We couldn't confirm penalty amounts on an official page, so check your notice.
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