The last thing an enterprise needs is an audit letter from CRA. This will not only disrupt the normal business operation, but also make the tax season into a rather difficult situation. If the CRA finds discrepancies in the accounts, it may lead to serious tax audit penalties.
To avoid this, you should be very careful when you file your tax returns. Then find a professional tax consultant. You can significantly reduce errors and simplify the tax filing process. Let’s look at some of the reasons for the CRA audit.
- Description of exceptional benefits
CRA understands the general income of each industry. CRA generates interest when income is higher or lower than general income. This will make them notice your small business. CRA uses a variety of methods to compare and conclude many other revenues and benefits of the industry.
- Income difference
It is important to list the same income on all tax forms. If differences between different tax formats are found in the CRA, an audit can be performed. Please ensure that the income you enter is consistent with the income provided by the employer and the third party.
- Large enterprise deduction
Applying for deduction of all business expenses is the most interesting part of the tax declaration stage. But you should be careful in doing this. Substantial deductions for promotional, catering, travel, entertainment and internet expenses will interest CRA. Engage professional tax consultants to prevent false deduction applications and reduce audit risks.
- 100% commercial vehicle use claim
It is illogical for you to think that the vehicle is only used for commercial purposes without using anything else. CRA knows this and will upload it to the review list immediately. If you do not have other vehicles, please do not use it as a tax saving opportunity.
If you only use a separate vehicle for business, please keep the operation log to support the claim. When performing an audit, you can submit the appropriate documents to support the request.
- Repeated loss
Small business deficits are not uncommon. But the same losses raise doubts every year. When these losses help you significantly reduce your income tax, you will certainly receive a letter of thanks. Reasonably list your actual losses and your income expectations.
- Batch charitable deduction
The CRA knows the limit for a company of your size to spend on charity. So when there is a staggering amount of donations, it will arouse suspicion. Then start the business review process. In particular, donations related to capital assets receive more attention than unrelated donations.
- Family members on the payroll
Let your family help you keep your total income stable on the payroll. However, when you pay a large amount of unusual money to family members for deduction, it will guide you to conduct an audit.
To avoid this situation, seek the help of a professional tax adviser. They will help to understand the rules for hiring family members and reduce the chances of being audited.
- Life is higher than your reported income
If you have a very expensive car and a house worth millions of dollars, but your declared income does not support this, it will attract CRA. Honest treatment of income and taxes payable is the best way to avoid audit.
Once tax evasion and fraudulent tax acts are exposed, they will face serious legal problems. But if you are good at budgeting and have reasonable claims, you should have reliable documents to support the claims.
Finally
Tax planning is not a matter of one month. It will take you at least three months to prepare for the tax season. In addition, all documents that contribute to claims support must be protected. Remember, unless the supervisor intentionally makes a false statement, it is not always a bad thing.
