Who Gets Audited by the CRA and Why?
Some businesses are more likely to trigger an audit than others. Here’s a summary of who is more likely to get audited by the CRA – and why.
No one likes being the subject of a CRA audit. The idea of the government looking through your books and double checking what you’re earning, and how you’ve been spending it is likely to cause a significant amount of stress even though you have nothing to hide. This prompts us to ask two questions: what kinds of businesses are likely to face an audit and what can trigger it?
Who gets audited?
There are several groups that are more likely to face a CRA audit than others. The self-employed and people working in heavily cash based industries, such as retail, construction, and or restaurant industries are likely to face closer scrutiny.
Significant income fluctuation can also lead to the CRA deciding to investigate, especially for the self-employed, and the odds increase even more if your income differs drastically from those living around you.
Other prime targets for CRA audits include businesses or rental properties that report significant losses in revenue, as it is likely to lead them to wonder how they’re staying in business.
Holders of offshore assets, and receiving overseas wire transfers for $10,000 or more are likely to raise red flags as well, as it could be a sign that money is being stored outside of the country to avoid taxation.
What triggers an audit?
There are reasons the above categories tend to draw scrutiny from the CRA. Retail, restaurants, and construction are heavily cash based industries and typically have higher rates of tax evasion and are more closely monitored than others.
In the case of the self-employed it has to do with the complexity of declaring earnings and expenses you declare as part of your taxes. There’s no single-point of reference for income with self-employment which is likely to warrant a more in-depth look at what’s been earned and spent as part of the business.
Rental and business losses that are reported can raise questions about the sustainability of the company or individual declaring them and may lead to the assumption that money is being stored elsewhere to avoid taxation. The risk of being audited for losses increases even further if the expenses aren’t comparable to other businesses in the industry.
If you’re facing a CRA audit, do not try to go it alone. A trusted accounting partner is key to navigating the audit process. Contact us to find out how we can help with your taxes and your overall peace of mind.
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