CRA Audit Ready
It’s that time of year again! Tax Time!!
While personal tax returns are due on April 30th, sole proprietors have until June 15 to file. BUT, if you owe any taxes the balance has to be paid by April 30th. So for those of you that do your bookkeeping just at tax time, unless you are 100000% sure you don’t owe any taxes, have them done before April 30th. This way, if you owe money you can make the payment on time and avoid interest and penalties, and if you’re getting a refund you’ll get that sooner than waiting until June 15 to file.
As some of you may have heard the CRA is ramping up their audit game by hiring more CRA auditors. A CRA audit doesn’t necessarily mean you’ve done something wrong, but you need to make sure you have maintained the proper records to prove it.
Your file can be selected for the audit for any number of reasons
- Random Selection
- Comparison of your information to other third party sources
- Types of deductions/claims and an individuals review history
It’s usually that last one that gets people selected. Why? Because:
Either you’ve been audited before and found to be “aggressive” or been denied expenses and so now you’re on the CRA naughty list
OR
You’ve got a lot of “high risk” deductions or claims. The high risk means these are areas people tend to be a little (okay a lot) aggressive and walking the line of allowable vs disallowed. The most audited categories are:
Business Use of Home
Meals & Entertainment
Business Use of Vehicle
Do these sound familiar to you? Most entrepreneurs love these expenses and often are putting through things that really are not business related OR hard to prove they are business related.
Just because you’ve received your Notice of Assessment does not mean you’re in the clear. You have to keep your records for 6 years and can be subject to an audit at any time during this period. Further, if they suspect fraud or intentional misrepresentation, they can go back even further. If expenses are disallowed, interest and penalties occur from the date of the original tax year, not from the date CRA audited you. So if in 2016 expenses from your 2010 taxes are disallowed, interest and penalties will be charged from 2010 on-wards.
So how do you protect yourself? Unfortunately, ignorance is not an excuse for improper deductions, nor is “well my accountant didn’t tell me that”. You are responsible for the accuracy of your submission. Speak to your tax preparer about what credits /deductions that are being claimed for you. If you’re an entrepreneur, understand the criteria to be able to claim expenses. Talk about taxes and strategy and if the accountant isn’t able to provide you with this type of consult – change your tax preparer.
“Behind Every Great Business is a Great Accountant”
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