Self-prepared returns are easy targets
It is no secret that the Canadian government and the CRA have recently been finding new ways to raise revenue. In recent years, the CRA has devoted more resources towards identifying common filing errors in order to reassess additional taxes, interest and penalties to taxpayers. Statistically, the CRA is aware that tax returns prepared by the taxpayer or unlicensed professional accountants are more likely to contain errors, intentional or otherwise, and because of this, self-prepared returns are easy targets for audit and reassessment.
There are countless reasons as to why an honest taxpayer is audited or reassessed – the most common reason being an honest filing error. Despite all of the care and attention given, sometimes an income slip is missed or a donation slip cannot be located. Other times, the taxpayer may not have kept a mileage log or tracked all of the clients they took out for meals or entertainment, resulting in the denial of these deductions and a tax reassessment. Generally, these common errors do not result in penalties and cause little interruption to the taxpayer’s life. Taxpayers who use professional accounting firms can rest assured that the firm would assist the taxpayer every step of the way to ensure the client is treated fairly by the CRA.
Taxpayers who choose to prepare their own tax returns without a solid understanding of the tax laws also commonly trigger a reassessment. For example, taxpayers who earn self-employed commissions, such as realtors are allowed to deduct expenses that are ordinarily not allowed by salaried employees. The CRA has very specific rules on the types of expenses that are deductible depending on the type of employment income a taxpayer earns. For example, realtors are able to deduct a wide range of expenses while investment advisors are limited in their deductions. A bank manager would be even more limited in the deductibility of their employment expenses. Not understanding allowable expenses and being overly aggressive in what is deducted will lead to reassessments following an audit. Basically, being aggressive and/or negligent could lead to more serious penalties. Ignorance of the law would not result in waived penalties.
Taxpayers who continue to ignore CRA’s requests to provide outstanding tax or information returns will not get an audit call; they will instead get their bank accounts garnished or frozen until such time they report completely and truthfully to the CRA. Whether you are a Canadian resident or a non-resident with Canadian source income, your filing and reporting obligations cannot be ignored.
How to navigate a CRA audit
Many taxpayers attempt to navigate a CRA audit without professional help at the initial stage in the process. This is not always a wise move as the average taxpayer is not aware of the intentions behind many of the questions asked by the CRA auditor. Often, the taxpayer seeks a professional only when a deadline imposed by the CRA is looming or when the taxpayer has already lost the first round of the audit. Unfortunately, at this stage, many professional accounting firms are reluctant to represent the taxpayer, which leaves the taxpayer at a huge disadvantage when negotiating with the CRA.
Representation During CRA Audits in Vancouver
For professional representation during a CRA audit, give us a call at 604-688-9198 and enjoy peace of mind, knowing you can depend on the experience and expertise of a professional chartered accountant.