A CRA tax audit comes into play when the Canada Revenue Agency decides to review the taxpayer’s account information in detail to verify if the tax laws are properly followed. Tax audits are not very common. You can reduce the probability of getting pinpointed by filing the tax return Canada accurately and honestly.
Tax preparation is a nerve-wracking task. Many people get anxious predicting they may be indebted or might have not filed the taxes properly. If you are also nervous for the same reasons, you might also worry whether you will get warning notification saying that you are being audited. Stay relaxed! If your mistakes are not severe the CRA may not trigger an audit. Moreover, follow up the red flags that can trigger a CRA tax audit; if not an audit, a letter stating you made some mistake and they have made required changes and now you owe them money.
Citing wrong income
Your income is the biggest red flag to trigger a tax audit. Of course, CRA will never waste its resources following someone who is dishonest and cheating them for a few hundred bucks. Moreover, people paying out a huge amount of taxes every year are the ones to trigger audits and help the CRA make more money. Secondly, claiming annual income extremely below or above the standard fixed by your country for your industry may also trigger audits. The CRA knows the income and profit margin for your industry. They will compare your return to the norm.
Deduction of business expenses
Business expense deduction is a huge advantage; especially for a small business. Regular expenses for meals, entertainment, promotions, advertising, travel, miscellaneous, etc. are scrutinized by the revenue agency. Claiming large deductions in these fields can attract CRA’s attention.
Not filing the passable market value
This area is a bit complicated and hard. Let’s here take an example. You are in need of buying a new piece of equipment for your company. The brand new equipment will be far more costly than the used one. Perhaps, you may get tempted to buy the cheapest option and file the cost for the new piece of equipment. Do you really think you can go unpunished? Yes, indeed you can. But, this can pave the way for a corporate tax audit. Most people won’t take this chance. File all receipts in a proper way. These pieces of paper will be the major items to back up your tax deductions.
Claiming tax deductions for home office
Being qualified for home office deduction is indeed a great deal. Here in this area, you can claim a percent deduction from your rent, utilities, phone, real estate taxes, etc. However, you must use your home as your workspace where you carry out all your office tasks, meet clients, and earn income. If your home is not used as an office, don’t claim a tax deduction for the home office.
Overlooking typographical errors
You will always be careful while filing your tax returns. But still, mistakes can happen; you may end up with some typographical error, or to the worse, you may mistakenly put a decimal point in the wrong place. Such errors can cause your amount digits to come out by thousands. So, double check your tax return carefully to ensure you are not audited for misspelling any work or number.
A lot of papers you will need to file while preparing your taxes. If you are doing your own taxes, you may miss filing some necessary papers. Therefore, it is advisable to hire a reputable accountant or tax preparer to manage the task and ensure that everything is done right.
Giving high charity
Charity is the best way to help somebody and lessen your tax burden. If you are claiming a huge amount, you are perhaps raising a red flag at the tax audit. Providing financial help to people is not wrong. But, staying informed is important. High charities could have the risk of you getting audited. Have correct documentation and receipts for all charitable items. Keep them well-maintained. Asking for a receipt for what you have given is not wrong. Revenue agency and tax auditors know how much people give to charity at your income level. So, if the charity amount exceeds the level you may have the risk of getting audited.
An audit is just a process of double checking to ensure that the taxpayers are not lying and haven’t cut corners. The word audit seems scary to hear, but if you follow the rules and do your tax preparation properly you really don’t have to worry for the red flags. Moreover, filing your own taxes could cause one or more mistakes, but working with a reputable accountant or tax consultant, you can stay assured that your taxes are done properly. In an unfortunate situation, even if you are audited, your accurately maintained papers will prove everything legal and rightful.