6 Things That Can Trigger a CRA Audit
The difficult part with predicting whether or not you will be targeted for a CRA audit is that Revenue Canada has so many different ways they choose who they are going to audit. Whether it’s because they are looking at a specific industry or transactions that have occurred, it’s fairly unpredictable for the most part.
I always advise my clients to assume that they will get audited because over the life of your business, the chances are very high you will be audited in some capacity. You need to be prepared.
There are definitely a few things to watch for that could make a CRA audit of certain types more likely, for example:
1. Don’t Be Late!
Make sure you file your HST returns and payroll returns on time. Simply filing those late can create a CRA desk audit.
2. Filing Errors
If you file an HST return and accidentally switch the debit and credit reports after submitting it, that will generally trigger a CRA audit.
3. Going From Payable HST To Refund
If you had a payable due for HST and all of sudden have a refund, the odds are that you could create an audit – at the very least a flag that might create one.
4. Unusual Transactions
If you’re planning to claim an Allowable Business Investment Loss (ABIL), either personally or in a corporation, expect that transaction to be audited as a minimum. It’s not necessarily a bad thing, often times it’s just a simple review but it is what most people would consider an audit.
5. Fluctuations In Your Industry
For example, if you’re running very consistent gross profit in your business and that all of a sudden changes dramatically, that can flag a CRA audit. I’m assuming that you filed correctly and something just went wrong (or good) that year but those are the types of changes that will create the potential for an audit.
6. Filing Incorrectly
The most common reasons for creating an audit or throwing up a red flag is through incorrect filings caused by laziness and disregard. That’s the big one. If you file on time, accurately and consistently, the odds of you being audited drop substantially.
Stay on top of your finances. Keep track of your records and become a receiptaholic. If you do get audited, you will need all your paperwork to support your claims and if you don’t have it, you’ll be paying for your mistakes and carelessness in the end.
If you really want to protect yourself from a CRA audit then you take the safe route and assume it will happen. At least that way you can be prepared.
Ken Davidson is a Chartered Accountant with BDO Canada LLP, with their Kelowna accounting firm. Ken specializes in helping Kelowna businesses that are in start-up mode, companies in Kelowna that are in their growth phase and are ready to take their revenues to the next level, and professionals to secure their financial future with solid investment advice. Ken is best known for his strategic planning advice that positions him as a trusted advisor above and beyond being a Kelowna accountant that gives typical tax planning advice. To contact Ken for a Strategic Business Review to learn how he may be able to help your Kelowna business, email him at firstname.lastname@example.org.
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