CRA Tax Audit Triggers You Should Avoid
Are you a business owner? If yes, then chances are you already have enough to worry about with managing your business under the stringent Canadian audit laws. Even if you work as a professional or freelancer, you might not want to draw unwanted attention from the CRA (Canada Revenue Agency).
No matter how honest or accurate you may be with documentation, there are certain triggers that attract the attention of CRA auditors and computers. Here is a list of some things the CRA looks for.
Keeping track of income is much easier than keeping track of expenses. Always label receipts whenever you make a purchase. Remember that when it comes to claiming reasonable expenses, there is no better defence than accuracy.
When someone claims an unusually high amount for business expenses, the CRA may wonder if they are mixing in their lifestyle expenses. For example, a business lunch that costs $200 will attract much more attention than once that costs $60.
If possible, try to automate records so that you can corroborate your claim if needed. There are many apps that can help you record vehicle mileage and similar expenses. Record expenses regularly on a real-time basis.
Suspicious Home Office Deductions
When calculating home office expenses, it is important to understand that you can only assert ownership to a dedicated space – a space which you use for more than half the time you devote to your business activities. Any diversion from it can land you in legal trouble.
What can you include in the dedicated space to keep away from such legal issues? The answer is simple – measure the area it takes out of the total area of your home. Laying a claim over 50% of a suburban town home for business purposes may raise a red flag.
Unreasonable Car Expenses
When it comes to car expenses, it is a good idea to tread cautiously. Only include details about trips you take for business purposes. The CRA auditors are more likely to analyse your records if you claim that you use your car only for business purposes.
Profit and loss are part and parcel of a business. That said, in connection with the CRA, it is important to show the legitimacy of a business with proper turnover and customers. While a business may have one or two or few bad years, reporting losses repeatedly might lead the CRA to think negatively.
Lavish Deductions Related to Travel and Entertainment
Make sure that your vacation expenses are, in fact, for business-related travel. When filing, record the information related to the venues where meetings were held, the people you met with, and the things that were discussed.
Your best bet to prevent an auditor from taking a second look at your whole return filing is to declare actual amounts. Also, do not forget to check the numbers to ensure the accuracy of your filings. If you are not sure how to go about it, get in touch with Silver Fox Accounting for CRA tax audits, problems, & representation in North York, Ontario.