Be That Business Newsletter #18: Reduce your business's risk of being Audited!

Running a small business increases your odds of being reviewed or audited by CRA; not only is your income tax more susceptible to audits, but now there is GST/HST that is open to audits and reviews, as well as payroll audits. But there are things you can do to reduce the risk of being audited, and it's no surprise that they ALSO are a double benefit to the success of of your business!
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1. File (and pay) On Time - CRA has limited resources, and so they are going to put their focus on auditing and reviewing those business that are more likely to have transactions entered incorrectly, both intentionally incorrect and un-intentionally incorrect. Put yourself in their shoes for a moment; imagine there are two businesses to choose to audit - One business files and pays on time, and the other business consistently files late, and consistently misses payment deadlines. Which business is going to be less organized and more likely for the auditor to 'find' money owed to CRA? You got it... Late filing attracts CRA's attention like the Eye of Sauron! The more disorganized a business is, the more incorrect claims they will find! This is especially true with GST/HST, where the credits you claim are dollar for dollar important, (as oppose to income tax expenses, in which income tax is calculated on at approximately 15% to 30% of the disallowed expenses). Also, late filing and late paying incur penalties and interest! Never give CRA more money than you have to! If your cash flow for some reason inhibits you from paying on time, STILL FILE ON TIME... there are late filing penalties that you can avoid if you file by the deadline, even if you don't pay on time.
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2. Shared Expense Claims - The Home Office Deduction is if you need to use workspace in your home exclusively to earn business income. It's difficult to support, especially if your business has another location it operates from. Be aware that claiming this when it is not applicable, or at a higher than realistic amount, can be a flag. Also, claiming 100% of a personal vehicle's expenses for business could catch their attention. It's rare for a personal vehicle to be used 100% for business, especially if there is not another vehicle for personal use. Also, to support vehicle expenses when audited, you need to have kept a vehicle log, and CRA knows that not many people actually do this.​
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3. Accuracy - Most of the items that catch CRA's attention are all related to accuracy;
   1. If your revenue on your income tax return filed does not line up with the revenue on your GST/HST Return filed, that's a sign that your records are not accurate.
   2. If your business seems to be performing differently than others in your industry, this could be a sign that your records may not be accurate. CRA uses industry averages about profit margins etc to bring potentially inaccurate returns to light.
   3. If your business continues to show a loss year over year and is your only source of income, the two thoughts are "where are they getting money to live?" and "why would you run a business that continues to show a loss year over year?" These are good questions! Especially if you are running a Cash-Intensive business, such as a restaurant, salon, or a contractor, as these industries are already high risk for CRA audits. So be sure to include all cash revenues in your records and reporting.
      
      

The main benefit of keeping your records accurate though, is not just for CRA. You are keeping track of your numbers for YOU. For the success and growth of the business! You cannot properly analyze and assess how your business is performing if you are not using accurate numbers. And if you are an outlier, then when CRA does want to take a closer look, your accurate numbers will support your reporting. Not understanding how record-keeping works is not an acceptable excuse to CRA. If CRA decides you showed gross negligence in keeping track of your numbers and keeping your paperwork, they slap on a Gross Negligence Penalty! This is 50% of the taxes, interest, and late filing penalties that they deem are owing! That is 50% in ADDITION to the taxes, interest, and late filing penalties. That can be a LOT of money. Accuracy pays a lot more than inaccuracy can cost! Keep things as close to reality as possible, and it's a win-win!

What are your personal tips and tricks for creating efficient processes? I'd love to share them in an upcoming newsletter, and give a shout out to your business!

Be Intentional Today!
Get out there, and Be That Business That Thrives!