How You Can Avoid Triggering a Tax Audit
A tax audit can turn out to be time consuming and expensive. The very thought of getting audited can be panic-inducing for many of us. The Canada Revenue Agency (CRA) does a risk assessment before picking up a file for audit. It involves closely analyzing factors like errors in filing tax returns to identify non-compliance with tax obligations. A tax accountant can help you understand the complex rules and regulations which determine your taxable amount. Our experienced professionals at Hurren Sinclair MacIntyre can help you plan taxes.
Take Steps to Prevent a Tax Audit
You can reduce the amount of tax you pay by means which are within the law. There are several tax-deductions which you can take benefit of like parking expenses at the office.
Adopting illegal ways may cost you in the long run and you may receive a letter from the CRA for proofs the deductions you have filed. Failure to submit these within the deadline may lead to an audit. All tax records for up to six years will be examined.
CRA can conduct a desk audit to dig deeper. The taxman will ask for receipts to check the declared losses and real estate transactions. In a field audit, the personnel will visit your home and office to verify everything.
If you report properly, you are less likely to be flagged for an audit. If you find it difficult to keep a track of your tax deductions, take the help of a tax accountant.
The following steps could help you avoid an audit:
Unusual Changes in Tax Returns
A lot of variations in tax returns every year tend to catch the eye of the CRA. Your case will seek more attention if you are a small business owner or self-employed. Your tax claims may be put for review. In case it happens, you need to be ready with the proper documents attesting to your claims.
Failing to Report Income from T-Slips
If you fail to submit any slips, the discrepancy will gather the attention of the CRA. You should submit any information you have without fail.
Refusing to Provide More Information
Always co-operate if you are asked to submit more information like receipts, logs or schedules. Failure to do so may unnecessarily result in a reassessment or audit.
Illogical Home Office Deductions
Home office deductions are given to self-employed people, small business owners and employees who work at home. There are several conditions set on how you use your space and how often you use it. Your return will be audited if the claims are excessive. For instance, claiming a spare den or a bedroom or a kitchen table which you also use for work. You should use the mentioned space more than 50 percent of your time at work.
Mentioning All Your Vehicle Uses as Work
Most people don’t have vehicles exclusively for work. The CRA allows writing off expenses of the car you use for your job or business. If you show 100 percent of your vehicle expenses as work, it may trigger an audit. Keeping records will help along with notes of every trip, their dates, destinations and purpose. An automated vehicle mileage record also saves time.
Hiding Cash Income
You are expected to report all your income. It includes cash or trade profits. There are a few things that can be observed to determine whether your reporting is false or not. If you have high taxpayers staying in your neighbourhood, the tax department may think of assessing your low-income returns. You can also be judged by your lifestyle and property.
Too Much Use of Tax Shelters
You may plan your finances exclusively to lower taxes. If you use the tax shelters excessively, you may attract an audit. For example, declaring a holiday as a business trip or a lavish dinner with friends as a work meeting. Sometimes, tax-payers are lured into traps. A fake non-profit organization can offer you receipts showing three times the actual donation. If the CRA finds the non-profit status of such charities, you will end up paying more taxes.
When you rent your home at charges lower than the market rates, you should not claim the income or the related expenses. Such an agreement will be a cost-sharing one and not an income-generating one. You cannot claim a loss if it is not a profit-generating venture. Repeated rental-loss claims may get the CRA suspicious.
Avoid Casual Reporting
Always declare the actual amount and check your figures before submission. For instance, try to avoid reporting $56,000 instead of $55,586. Sometimes, correction after filing the taxes may cause someone to take a second look at your returns.
Get Professional Help
Never over-claim your expenditures or deductions. However, if you have received a letter from the CRA asking for details, be calm and co-operative. You cannot do anything to avoid it. Get organized, and if there are some grey areas, it will be better to get professional assistance.
Tax accountants at Hurren Sinclair MacIntyre are qualified Chartered Professional Accountants. They are experienced in offering various types of tax services for clients at all stages of the business cycle.
Get in touch with us today to learn more about how we can help you.