How to Survive CRA Tax Audit – Few Pointers

Introduction – CRA tax audit is quite common for businesses in Canada, but that does not mean you are naturally capable of dealing with the subject in a suitable manner. The subject of tax return and audit is a complicated and extensive process. Handling CRA audit without proper knowledge and experience on the subject is tough and often proves to be detrimental towards your financial well-being. So, it is wise to seek proper professional help regarding CRA Tax Audits and ensure financial transparency for your business.

The Pointer for Your Assistance – To make the process of tax auditing easier, smoother, less time-consuming and essentially survivable, you need certain pointers. These points are tested and tried methods and have proven to be quite successful over the years. Therefore, when your professional consultant suggests them, paying heed and applying them will be the right thing to do. The advice which will help you deal with CRA Tax Audits successfully are:

  • Being respectful and cooperative will help you go a long way. People who are coming for the audit are just doing their job and if you help, then the job can be done a lot faster which in turn will help both parties. Being organized and having every receipt and paper in order will prove to be quite helpful.
  • If you lack the knowledge and experience in the matter of tax filling and audit, then seeking professional help should be the priority. The best option will be employing the tax lawyer as soon you receive the missive regarding audit. This way, your consultant will have enough time to prepare a better case and help your business.
  • Having a clear idea about your position from the very beginning will be of great help and importance. This way, you can be sure about your chances into the scheme of things which in turn will help you to decide whether to go for win or simply settle for less.
  • Even after hiring professional help to deal with the matter, you cannot be completely clueless in the matter. This is because, the CRA Tax Audit consultant you have hired is helping multiple people at the same time. As a result, a few things may get overlooked which won’t be good for your finances. So, keeping an eye on the things and ensuring regular communication with the tax consultant will be the smart thing to do.
  • Before you decide to question the findings of CRA and appeal, it will be crucial to ensure that such an action makes sense and will be wroth the effort.

This way, you and your business can survive the CRA Tax Audits for the years to come, without any complications or unnecessary worries.

What Business Expenses Does The CRA Consider as Tax Deductible?

Are you worried about paying a hefty sum of money in the form of taxes to the CRA? Do not worry. You can minimize the excess financial burden on you by writing off the taxes. However, it is important to stick to the guidelines issued by the CRA and implement them properly while deducting business expenses to reap the benefits.

To begin with, a taxpayer needs to know what, according to the CRA, constitutes business expenses that are tax deductible. Read on to improve your knowledge about it.

What Expenses are Eligible for Tax Deduction?

There are various kinds of deductible business expenses. A majority of these expenses relate to the sum of money taken to earn business income. However, the CRA imposes some limits on the deduction of capital expenses as well as GST/HST amounts.

By virtue of the capital cost allowance, those who run businesses are entitled to deducting the amount of money involving depreciable assets in the due course of time. The GST/HST expenses can be recovered through input tax credit over time.

According to the CRA, the following expenses can be deducted for your business

  • Business start-up costs
  • Business fees, tax, dues and licenses
  • Use-of-home expenses involving a business
  • Office expenses,
  • Interest charges
  • Insurance

What Advertising Expenses Are Tax Deductible?

The charges pertaining to the posting of advertisements are tax-deductible as per the rules laid down by the CRA. These include expenses related to the business card, finder’s fees and advertisements in the printed publications, such as magazines, in Canada.

With regard to deductions from advertisements at printed publications, it is necessary to bear the following points in mind:

  • If the actual ad content accounts for either 80% or more of the slot of the content that is not related to the advertisements, you are entitled to deduct the full expense.
  • If the slot covered by the ad content is less than 80% of the slot covered by non-advertising content, you are allowed to deduct only 50% of the overall expense.

Business Start-up Costs

The CRA focuses its attention on determining the actual day when the business had started. This is very important as it helps in the calculation of start-up cost. On the other hand, reporting the actual date of a merger is necessary to ensure correct deductions.

For a business acquisition, the date of the merger is central to the calculation of tax deductions.

Business Tax, Licenses, Fees and Dues

As for this category, you can deduct the following:

  • Any kind of business taxes and annual license fees
  • Yearly fees or dues resulting from membership in a commercial or trade association

Use-of-home Expenses

The expenses related to the following items are included in this category:

  • Electricity
  • Insurance
  • Mortgage Interest
  • Property Taxes
  • Heat

Insurance Costs

Deductible commercial insurance considered on this front include the following:

  • Buildings
  • Machinery
  • Equipment

If you have a car, you can report its insurance with the expenses related to a motor vehicle for business purposes.

Office Expenses

According to the CRA, the costs of the following items are deductible:

  • Pens
  • Pencils
  • Paperclips
  • Stationery
  • Printer paper
  • Stamps

Commodities like filing cabinets and furniture are included in capital expenses.

Feel free to contact us for more information on CRA tax audits, problems & representation in North York Ontario.

What is Considered While Calculating Mileage Tax Relief

Do you use a vehicle to travel from one place to the other place? If yes, then your mileage can result in a tax relief. The sound knowledge of the number of kilometres travelled by you for business purposes can come in handy in the calculation of deductions related to the use of your business vehicle. Precise monitoring of mileage can assist you in saving time at the time of submitting an income tax return.

Why is It Necessary to Monitor Mileage?

Noting down the odometer readings in a timely manner is the sure-fire way of presenting the data about how you have used your vehicle for business purposes to the CRA. For best results in this regard, it is strongly recommended that you should note down the odometer readings on a real-time basis to prevent the possibility of any discrepancy. Keeping a logbook handy can help understand how your vehicle was used during business travel or trips.

How to Mention Mileage to Claim Tax Relief?

Usually, the Statement of Employment Expenses is used for the purpose of reporting vehicle expenses. In order to claim the vehicle expenses, it is important on the part of the owner of the vehicle to report information about it including the following details:

The make, model and the year in which the vehicle was manufactured

  • Total kilometres for which the vehicle was driven throughout the year for business purposes
  • The total distance covered using the car (in kilometres) throughout the tax year
  • The calculation of your motor vehicle expense deduction

In addition, the following information should also be furnished:

  • Maintenance and repairs
  • Fuel
  • Licence and registration
  • Insurance
  • Applicable interest
  • Capital cost
  • Leasing
  • Extra costs
  • Mileage allowances
  • Prescribed rate
  • Automobile benefit

Calculation of Motor Vehicle Expense Deduction

Once you work out the total amount of money which needs to be taken into consideration for the calculation of the vehicle expense deduction of your motor, the rest becomes simple and easy. All you need to do is apply the following formula:

Motor Vehicle Deduction = (Business kilometres/total kilometres) x total vehicle expenses

Allowances Related to Mileage

Regardless of whether or not a vehicle is owned by an employee or their employer, the CRA applies specific rates for the consideration of reasonable per-kilometre allowance. It applies whenever an employer pays for the reimbursement of mileage for an employee.

It is necessary to stay within the rates as specified by the CIA to keep the motor vehicle benefit tax free. Further, it is not necessary on the part of the employees to make a mention of the allowance while reporting the income at the time of filing an income tax return. Any expense which does not come under the allowance is liable to attract taxes.

According to the CRA, an allowance is reasonable when the following conditions are applicable:

  • The allowance is worked out using the number of business kilometres for which a vehicle was driven in a year
  • The amount of money paid towards rate per kilometre is fair and reasonable
  • The employee has not received any reimbursement with regard to vehicle expenses.

Automobile Benefit

At the time of determining an automobile benefit, which is provided by an employer, the calculation is done using the standby charge. The following aspects are taken into consideration:

  • Mileage
  • Operating expenses
  • Costs
  • Fuel
  • Repairs

For more information about CRA tax audits, problems & representation in North York Ontario, contact us now!

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.

Unusual Expenses

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.

Repeated Losses

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.