Avoiding a tax audit

Dianne St. Jean
Avoiding a tax audit

Here’s a few tips that can help you avoid a tax audit, particularly if you run a small business.

Audits are time-consuming and stressful, so you want to do as many things the right way when you file to save you time and a big headache down the road:

1) File your tax return every year.

2) Report all income. Did you know that the CRA gets a copy of all information slips you've received (T4's, T5's, etc…) and they cross check them by computer to make sure everything is reported.

3) Have a reasonable expectation of profit. Your business shouldn’t be reporting losses year after year.

4) Be consistent with your expenses. Your business expense deductions must be reasonable, and the expenses MUST be incurred to earn income. This means that claiming your personal expenses is a bad idea – it's not allowed under the tax law. You also need to make sure your expenses are consistent from year to year. A significant jump in meal expenses or travel costs might cause a red flag with the CRA.

5) Don’t cheat. The CRA has identified industries that have higher incidences of cheaters in the past. Some of these industries are construction, subcontractors, auto repair, direct sales, childcare, cleaning, and restaurants. Also, it's important to note that the CRA can also pay attention to you online – Facebook, social media, your blog, etc… so they might be aware of things and watching you.

6) Think twice about taking cash under the table. It can be risky and there's been stories of customers of people working for CRA and reporting businesses doing this.

7) Learn from your mistakes. If you get caught or audited, the CRA will likely look at previous tax years or future years and pay extra attention to you and audit you further.

8) Don't give the CRA something to audit. Try to make your tax returns simple. Someone with just one T4 slip has less of a chance of being audited. The CRA likes to flag more risky items, such as: tax shelters, business losses, significant interest deductions, big business expenses, etc… Make sure all of your deductions are legitimate.