Over my many years in public accounting I have often run into clients who freeze when they think about the possibility of being audited by Canada Revenue Agency (CRA). The general feeling with Canadians is that CRA are the bad guys and our government charges us too much for taxes anyway. I sometimes joke with clients and say “well, we do live in a free country so wouldn’t it be nice to owe a few hundred thousand dollars in income taxes?” Of course that would mean that even with our tax system, they would have made a lot of money.
It’s okay to be trying to minimize our tax bills, but we need to do it within the framework of the rules. I encourage clients to conduct their affairs with the thought that they may be audited someday and that everything should be in order when that happens. My experience in dealing with CRA has been mostly positive and I have had a good amount of success regarding various types of audits with my clients.
How can you, as a business person relax and not live in fear of a CRA “AUDIT”? The first principle I encourage with my clients is to be honest. Report all of your income, but also claim all of the expenses to which you are entitled. Unfortunately not all business people know what they are entitled to, and may either unknowingly claim expenses incorrectly, or not claim expenses that they deserve under the income tax laws of Canada. For example, some business owners don’t know that you can only claim 50% of the HST on meals and entertainment, as well as just 50% of these expenses for income tax purposes, except in certain circumstances. This is one of the main reasons why you, as a business owner, need the services of a professional accountant. A professional accountant can assist you in structuring an accounting system that will properly…track your revenue and expenses, including correct reporting of HST. They can also give you tax advice to ensure you are maximizing your tax benefits, but staying within the boundaries set by tax law.
Make sure that you keep copies of all of your receipts. If you are entertaining clients or your employees, make sure that you write the names of the people and the purpose of the meal or entertainment on the receipts. Audits often occur 2 – 3 years after the filing of tax reports, so if you are anything like me, you won’t want to depend on your memory for details.
To keep on the friendly side of CRA and reduce your chances of being audited, always file and pay your tax reports on time, including tax returns, payroll remittances and HST returns. Make sure you give your accountant authorization to deal directly with CRA. In case it is ever required, make sure you give your accountant authorization to deal directly with CRA. agents on your behalf. In fact, it is wise to have access to your own accounts online with CRA by properly registering through “My Account” or “My Business Account” on the CRA website.
If you are ever contacted by a person from CRA for an audit, make sure you are always friendly and try to be accommodating within reason. It is also imperative to have an accountant who has experience dealing with CRA audits, and get them involved.
If you have prepared properly from the beginning, you will never have to worry about an audit and can sleep soundly knowing that you are ready if that call ever comes.
Submited by Gary Graves, garygraves.ca
