If your Vancouver business receives a letter from the CRA (Canadian Revenue Agency) asking for documentation to support an HST or corporate tax return, it is not a good idea to deal with the matter on your own. Hire a Vancouver chartered accountant to represent you during the business tax audit.
First of all, CRA auditors are accountants. When they request information, they basically expect to see accounting information, not a lengthy verbal explanation on why your HST return for this year is much different from the prior year.
The preferred method to record business transactions is a general ledger, which provides an effective means of validating your HST return figures. Experience has proven that where your filed HST return ties mathematically to the general ledger provided to CRA as documentation, the auditor is generally satisfied and the audit ends there. For small businesses, such as a coffee shop where there are many purchases of small dollar amounts, if the business can come up with a general ledger that ties to the tax returns filed, that will suffice for the auditor. In those instances where there are minor discrepancies, your professional accountant should reconcile the differences for the auditor.
The audit will be automatically expanded to a greater scope when the business is unable to provide a general ledger or reconcile the discrepancies between the general ledger and the returns filed. This is where a nightmare could begin.
Not only will the time period covered by the audit be expanded (usually expanded to two years worth of activities), the paper documentation requirements will be expanded (e.g. vendor invoices need to be photocopied and provided to the auditor). Using the coffee shop example, photocopying all the small receipts for lettuce, Creamo, and fresh oregano purchased from their suppliers can be extremely time consuming, even if the receipts can be located in the first place.
So having an accurate and complete general ledger is your best insurance against an audit. I have heard comments from business owners that the onus is on CRA to piece together your general ledger if one does not exist. That’s where companies run into problems and owners set themselves up for a detailed audit that could cost them thousands in time and resources to comply – all of which can be avoided. The tax laws explicitly state that businesses have the responsibility to keep accurate and complete financial records. If the CRA has to piece together a general ledger for the sake of HST reporting, the end result will greatly favor CRA, not the taxpayer.
The business owner is not the right person to deal with the auditor under the stressful situation presented by a potential audit. Professional Vancouver accountants have the same background as auditors and know how to present the requested information in such a way to extinguish an audit before the fire ignites. So when the CRA comes knocking, call your professional chartered accountant.
If you have any questions or would like to know more about how we can help you, contact us.
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