How Not To Trigger An Audit From The Canada Revenue Agency — Part Two

We've talked about this before, but making sure you don't trigger a CRA audit is such an important topic, we've come up with some more thoughts!

The first thing you can do to make it more likely to get audited by the Canada Revenue Agency (CRA) is to be a business owner. Knowing that you are a higher profile with the CRA than your friend who works at a 9-5 job for a company and has a very simple tax return, you should also know about some of the other things that get the attention of the CRA.

For starters, here's a video on red flags that might attract CRA attention. 

Home Office Expenses

As with all expenses, you need to be able to prove these expenses with receipts. You can also claim *some* home repair/home maintenance expenses if you are working out of your home, but not all of them. 

House-Flipping

There is a lot of money to be made in Canada’s hot real estate market, and the CRA expects you to pay the taxes you owe for profits from real estate flipping. The CRA has an audit project dedicated specifically to real estate, if you’re not sure how serious they are about real estate flippers paying what they owe.

Car Claims

You can and should claim vehicle expenses on your taxes if you use your car to earn income. What you shouldn’t do, however, is try to claim an unreasonably high percentage of your car use for business purposes. It isn’t likely that you are using your car 100% for business, and the CRA is aware of this.

The Family Business

If one member of a family business is getting audited, chances are you are all going to get audited. People have played fast and loose with using their family members to shelter income from taxes, so the CRA has a special look-out for family businesses. As always, keep good records of who is earning what and what taxes they need to pay on it.

Large Charitable Donations

Charitable donating is wonderful, and getting official income tax receipts and claiming these donations is also a great idea. However, you need to keep it reasonable—if you’re going to try to claim that you donated 75% of your income last year, the CRA will not be buying it.

Previously Being Audited

Ideally, you don’t want to engage in the risky behaviours that will get you audited in the first place. If you do manage to catch a random audit, it will go in your favour if you can prove all your deductions with the receipts you have kept and only need a slight adjustment (if any) at the end of the audit. Being caught red-handed by the CRA can (understandably) result in them keeping you on their radar, which is not a place you want to be.

Informant Tips

Yup, you can get busted with the CRA by someone else. Once again, claim only the things you can legitimately claim, and have documents to back it all up. Not being up to shenanigans is the best way to not have someone informing on you.

Using an accounting company like Shaw & Associates for all your accounting needs is the best way to keep your accounting and taxation pristine to avoid raising the CRA’s red flags. Shaw & Associates can also represent you if you do need help with an audit.

Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.