Common Audit Adjustments in Canada Made by the CRA
Following an audit letter, the CRA determines what adjustments must be made to ensure compliance. Here are common audit adjustments in Canada.
When your year end comes around, it is essential to ensure that your taxes have been filed accurately. Failure to file your taxes correctly may trigger an audit by the Canada Revenue Agency(CRA). Approximately 30,000 audit letters are sent out yearly by the CRA. Following an audit, recommendations are made by the CRA about the tax adjustments that need to be made to ensure full compliance with Canadian tax laws. Below are some flags that trigger a CRA audit and subsequent adjustments.
Incomplete or Inaccurate T4 slips
Your T4 slip, also known as a statement of remuneration paid, should reflect all wages earned over the previous tax year from an employer. Wages that should be included on the T4 slip include tips, gratuities, or other cash payments. It is the responsibility of the business owner to ensure that all income sources are fully reflected on the employee’s T4. Failure to report all earned income on your T4 slip may trigger an audit by the CRA.
Certain criteria have to be met before vehicle expenses can be deducted. Some of the conditions necessary for you to deduct your vehicle expenses include working in different locations or using your vehicle for work-related reasons. In addition, only specific kinds of expenses can be deducted on your taxes. Making vehicle deductions without meeting the recommended criteria is a red flag that can trigger an audit.
Home office deductions
Telecommuting has made it possible for people to work from home. To claim the home office deduction, your workspace should be used at least 50% of the time for your work. An alternative criterion is that your workspace should serve no other purpose but work. Failure to meet either of this conditions when claiming this deduction may increase your chances of being audited by the CRA.
Under certain conditions, parking provided by an employer for employees is considered a taxable benefit. If the parking provided does not confer any added benefit to the employer, then it is a taxable benefit for the employees. Conversely, if the parking provided benefits the employer, then the employees do not have to be taxed.
- A Guide to Advertising Tax Deductions for Canadian Small Businesses - February 11, 2021
- Small Business Expenses in Canada: Eligible Interest and Bank Charges - February 11, 2021
- How to Expense Mileage, Entertainment and Meals in Canada - December 31, 2020