Top 10 Audit Prompts:
When it comes to your small business, what will trigger the CRA to consider an audit?
Major Changes in Income or Expenses; CRA likes things to be predictable, when things change dramatically, they will ask questions.
Repeated Losses; really? For how many years do you think your business can sustain losses before CRA will question it?
Expenses that are different than others in your industry; if you claim $10,000 in travel and all of your competitors don’t claim travel, CRA will question it.
Underreported Earnings; CRA conducts very detailed statistical analysis of businesses. If you are in a certain industry, they know what your margins should be; if you are way off, they will question it.
Large Charitable Donations; Your business is not doing well, but you donate $10,000 to charity? They will question it.
Home Office Deductions; There are very specific criteria required to claim home office expenses, if you don’t meet the criteria, they will come calling.
Discrepancies between GST Returns and Tax Returns; yes, they do check! If your revenues do not match or your expenses are not the same, they will question it.
Shareholder Loans; if the loans appear on your financial statements (as a receivable) for 2 consecutive years, expect a call! CRA does not like Shareholder loans that should be considered income and taxable.
Errors and Missing Information; If you get dividends, investment income, or rental income, CRA knows this. If you neglect to report it on your tax returns, they will call.
Divorce! – Yes, there is nothing worse than a disgruntled spouse. One call to CRA declaring that you have hidden income, over-reported expenses etc. will get you Audited!
There are a few other ways you can get yourself audited, but your best defense is a good accountant and accurate, detailed records!
A Cheap Bookkeeper can be Very Expensive!
Don’t skimp on a bookkeeper, it could end up costing you tens of thousands of dollars in additional taxes, interest and penalties.