For any Canadian, the idea of being audited by the CRA is not a pleasant one. The CRA’s compliance program pays a particularly high amount of attention to small and medium enterprises, so here are a few ways to minimize the chances of an audit for your business.
Be Careful With Expenses
Staying smart about how you claim expenses for your business is one of the most significant measures for minimizing the chances of an audit. Excessive expenses or high number of expenses in certain categories will be more prone to attract attention. The same goes for excessive home office deductions and claiming 100% of a vehicle for business use. A CPA can advise you so that your business can benefit from deductions without setting off alarm bells.
The CRA’s compliance system likes to see overall consistency in business tax returns, and this is true on multiple levels. Your business tax return must be consistent with, for instance, those of others in your industry. If you’re showing abnormal income when compared to your peers and competitors, this will be cause for additional scrutiny. Discrepancies between sales and the total reported on line 101 your GST/HST return will also be one of the first things they look for.
Be Thorough and Organized
Each time tax season comes around, it’s a good idea to act as your own auditor. Review your documents several times, work with an experienced business accountant, and be thorough. On top of this, meticulous and organized record keeping will always be your most powerful ally when it comes to business taxes. Not only does it help you and your CPA carry out air-tight tax preparation, it helps you to comply swiftly with requests for information from the CRA.
Consider Other Red Flags
There are certain details that the CRA may be more prone to register as red flags than others. It’s important to know what they are and speak with your business accountant about how to navigate them. Businesses with a high flow of cash, unusually high charitable donations, and recurring losses are key examples. Additionally, if your business is paying income to family members, it must be a reasonable amount that is justified by their contribution to your company.
From audit and assurance consulting to GST/HST compliance services, the Calgary CPAs at Cook & Company are here to keep your business in excellent standing with the CRA. Give our team a call at (403) 768-4377 to learn more about how we can help you avoid common issues.