Whether you are an individual taxpayer or a corporate taxpayer, a call from the Canada Revenue Agency (CRA) will surge your anxiety. Most calls from the CRA are benign. Usually, they’re calling to inquire about an outstanding return or a figure your professional accountant has put in the wrong box.
But according to CRA, for the 2007 and 2008 fiscal years, 87,000 small and medium enterprises were audited. CRA uses a computer system to assess taxpayers, assigning them a risk factor of high, medium, or low. Here is a surprising fact; 56% of the 87,000 audited enterprises were initially assessed as low risk by the computer system, yet the human factor in determining which enterprise to actually audit selected them for an audit anyways. How did this happen?
An audit is expensive but more importantly, nerve wracking, even for the honest taxpayer. Here are some suggestions on how to avoid being selected for an audit:
- Your current star employee and significant other can be the future ex-employee and ex-significant other. Many anonymous calls to CRA are made by an ex-something. Take care in your dealings with them.
- Use a professional accountant to file your corporate tax return. The benefits will outweigh the costs. Tax professionals know which industries are the current targets, which expense items are the current targets, and these professionals can provide guidance on managing the audit risk. Having a professional accountant answer the initial questions from CRA will often end the potential audit process right there.
- Make sure all the supplementary filings are consistent with the corporate tax filing required. Examples: the dividends reported on the shareholder’s personal tax return agree to the amount reported on the corporate tax return; the total revenue reported on the GST return agrees to the revenue reported on the corporate tax return; the payroll deductions remitted to CRA agree to the tax slips issued to the employees. These tasks are easily handled by a professional accountant.
- File complete returns. Many taxpayers do not want to deal with investment losses.
- The tax reporting system is an honour system so be honest. If you are not honest, you may find yourself shaking every time there is a phone call from your accountant or the CRA.
If you have any questions or would like to know more about how we can help you, contact us.
Disclaimer: All Rights Reserved for Mew & Company. This blog post is designed to provide information for personal use only. Please consult your professional tax advisor for further information. Mew & Company is not responsible for any legal disputes resulting form the content of this blog post.