If there is one thing that is worse than
paying taxes it is getting audited for not paying taxes. A notice from the CRA
can send a chill down your spine and have your stomach doing flip-flops.
Hopefully, you'll never have to be exposed to that anxiety inducing type of
situation. While there is no hundred percent guarantee that your business will
forever be spared an audit, there are some proactive steps you can take to
avoid that process.
Here are the top triggers for a possible
CRA tax audit:
Trigger
#1: Mixing Business and Personal Expenses
When it comes to your business accounts and
personal expenses, it is best to keep them separate. You should already be
filing individual tax returns along with your business returns. Therefore it's
not a stretch to keep those items separate. In the real world, the lines
between what you spend for your business and your personal life can get
blurred. Try to keep them in focus for the purpose of your tax returns.
Trigger
#2: Paying Your Living Expenses Out of Business Profits
This is related to "trigger #1."
As far as the CRA is concerned you're an employee of your company on par with
all the other employees. As a result of that employment you should be getting a
salary. Out of that salary you pay for your living expenses. You can't pay your
mortgage out of your business profits.
Trigger
#3: Failing to Make Payroll Deductions
Sometimes we employ our family members and
friends to help with our start up business. There is nothing wrong with that
but that doesn't mean those employees can skate on the payroll deductions. You
need to treat every employee the same and that means keeping accurate records
of payments and deductions.
Trigger
#4: Cross Border Taxes
If you do business in the U.S. then their
IRS agency will be looking over your shoulder along with the CRA to make sure
everyone is getting their fair share of taxes.
Trigger #5: Invoicing Amounts Greater
Than $30,000 Annually
$30,000
is the threshold that will trigger the need to register and file HST/GST/PST.
If you overlook those filings you can anticipate an audit.
Trigger #6: Multiple Businesses
Your goal
should be to expand your business into different regions but that can be complicated
with the variant tax codes. The way around that is to set up separate companies
that are region specific. That makes smart business sense but it can also draw
attention from the CRA who want to make sure all those regions are being paid.
Trigger #7: Being a Success
It might
seem odd that success would trigger an audit but the more personal income you
accumulate the more it is thought that you'll be trying to shelter that income
from taxes. The CRA is always watching!
The most important thing you can do is keep
accurate records and follow the rules. That way if you are called in for a
routine audit you'll have your defenses ready.
