Quick Tips: 10 Red Flags to Avoid a CRA Audit
The word “audit" is one of the things that scares business owners the most.
We’ve compiled 10 warning signs for an CRA audit that you should watch out for:
Big deductions for meals and travel
If you have minimal business expenses in other areas but are claiming a significant deduction on “meals and travel”, you could be inviting an audit.
2. Home office deductions
This deduction is available for homeowners and renters, but certain restrictions apply.
3. Mixing personal and business deductions
Save yourself the trouble and keep business separate from personal expenses to make record-keeping easier!
4. Consecutive losses
If your business has been chalking up losses year-on-year for multiple consecutive years, you can be sure the CRA will be digging deeper into your books.
5. Misclassifying contractors
When you misclassify workers in your business, you may be liable for employment taxes for the worker, so be sure to check which category your workers fall into.
6. Underreporting income
The CRA uses an automated system to compare what you list on your return to reports they receive from other third parties.
If this system discovers a discrepancy, the CRA will issue you a letter to correct the errors.
7. Not paying yourself a salary
As an owner of a Corporation, you need to be paying yourself a salary within certain guidelines and report this salary.
8. Excessive expenses
The CRA may read these expenses as not being in line with your business model or disproportionate to your income and may start looking at your tax return in more detail.
9. Vehicle deductions
As a small business owner, claiming 100% exclusive use of a vehicle for your business is difficult to prove and may be an audit red flag for the CRA.
10. Gross income above $100,000
Making a large income in your business is fantastic, but unfortunately, it also raises your chances of being audited.
An audit is not fun for any small business owner. Apart from the stress and anxiety of being selected for an audit, you may also find that you end up on the wrong side of an audit and have to pay large sums in penalties.
By looking out for these 10 common red flags that trigger an audit, you can reduce your chances of being audited. Another way you can do that is by getting your books in order.
Why take the risk of doing your own bookkeeping and potentially getting audited?
Hire a professional to review your books and records, and sleep better at night knowing that your tax returns are problem-free. Interested in getting a professional to look at your books? Schedule a call with us today.
If you need further help or assistance. Always feel free to contact Fix My Books as we are here to help!