How Your Business Can Avoid Being Audited by the CRA
Everyone wants to avoid being audited by the CRA. So, do you hire a professional at year end, or do you roll up your sleeves and play accountant?
Nobody likes the idea of being audited by the CRA. As a business owner, it is wise to take precautions to ensure that your accounting practices won’t trigger an audit. To prevent the CRA from looking into your business, it is essential that you understand the issues that they consider questionable.
Get to know your industry
The first step is to understand the norms of your industry. Every business type has a typical set of expenses and deductions. If travel is an ordinary expense in your industry, then it might make sense to have a lot of travel expenses. If you are a car salesman and you’re writing off trips to Hawaii as a business expense, you are giving the CRA a reason to look at your books.
Your income should match up to industry standards
If you’re operating a restaurant on Main Street, and your business income is significantly higher or lower than similar businesses, you may be a target for an audit. It would make matters worse if you consistently report a loss of income for your business. In the case of a restaurant, which is a cash business, the chances of an audit are even higher. Cash businesses are typically prime targets for a review without having any other underlying concerns or issues.
Filing personal property as a business expense
Many business owners have a home office or use their basement or other areas around the house as additional storage space for their business. While it is legal to write off a portion of your home as a business expense if you are using it exclusively for business purposes, it can still result in an audit.
People think that the left hand doesn’t know what the right hand is doing. That is not the case with the CRA. Wherever you file your income, assume that the CRA will cross-check your numbers to make sure that they match across the board.
There are many more issues that raise concern by the CRA. Although all of your expenses may be legitimate, your business might still fall under the scrutiny of the CRA. The smartest thing you can do is to make sure that you prepare yourself in advance.
E&E Professional Accountants has years of experience in assisting businesses with their accounting needs. We are founded and managed by a an experienced corporate auditor and a former CRA tax auditor. Feel free to contact us for assistance with all your accounting and bookkeeping needs.