Red Flags That Might Get Your Business Audited!
Every year, Canada Revenue Agency (CRA) sends out thousands of letters informing businesses that they are to undergo a
tax audit. The CRA's job is to ensure that all companies pay taxes as they should, but different structures allow for different tax rates. You must keep your documents in order, and if you're not familiar with finances, you should consider hiring a reputable
bookkeeping service .
No one wants to hear that they are to receive a CRA audit. It’s important to be aware of potential red flags to avoid the CRA monitor list. Here are seven red flags that might get your business audited.
Family on Payroll
Having your family on payroll can raise eyebrows for a few reasons. Family members are subject to favouritism and therefore can receive specific pay perks that others wouldn’t; pay perks like extra tax write-offs, cash payments (under the table), hotel stays, and more.
It’s not illegal to have your family working for you; it just might be cause for a CRA audit. Always ensure you have detailed records in case do you receive a tax audit.
Yearly Losses
If your business isn’t receiving substantial revenue, the CRA will most likely question how the business is managing to stay afloat. Yearly losses are a sign that a business isn’t generating income and can raise suspicion with the CRA, resulting in a closer look at company taxes.
Cash-Intensive Businesses
Businesses that operate primarily on cash payments such as hair salons, restaurants, nightclubs, and others are more susceptible to CRA audits because it's easier to conceal income. Without using a bank or credit card system, businesses could be evading paying the required tax targets.
100% Business Use of Your Vehicle
Claiming 100% use of your personal vehicle on your business taxes is guaranteed to raise red flags. It isn’t likely that you’re not using your vehicle for personal use whatsoever, and the CRA will suspect that. Always keep records of your kilometres and reasons for business trips,
Home Office Deduction
Home office deductions are another expense that often gets questioned. It’s easy to exaggerate space and office items when it comes time to declare costs. Services like landscaping and cleaning should not be claimed for your home office. Make sure you keep a record of the size of your office space in the event that you do receive a CRA audit. Take pictures and keep measurements of your office space.
Large Charitable Donations
Charitable donations are fabulous. Many charities need assistance, but if your donation is exceptionally high compared to your business’s income, that’s a cause for alarm. Always make sure you keep your receipts after donating. There is a list of approved charities for contributing to and claiming in your taxes. It is always best practice to double-check and, again, keep receipts.
Being an Outlier (Unusual Profit or Loss Margins)
Standing out from what’s considered normal is not always good, especially regarding the CRA and your taxes. If your business is recording unusual profit or loss margins, it’s sure to catch the attention of the CRA and merit a tax audit.
How Can We Help
Our accounting team at Charles Ghadban Accounting specializes in helping business owners minimize their tax obligations by providing peace of mind for their company finances. We assist with tax planning and offer hassle-free financial strategies for your business. If you’re worried about CRA audits and are not familiar with bookkeeping and other accounting services, please give us a call at 613-234-7856 or fill out our online
contact form to book an appointment.
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