There is a reason people get paranoid about the mere possibility of a tax audit. It’s hard to fault them for this paranoia as going through a tax audit is almost always an unpleasant experience. While it’s true, that the Canadian Revenue Agency or the CRA routinely approaches citizens for documents and receipts pertaining to the returns they file, this is, however, not a tax audit. This is simply a ‘request for additional information’, and you shouldn’t be concerned as long as your paperwork is in place. The CRA only approaches individuals for a personal audit if they come across suspicious activities or patterns. The tax specialists always warn entrepreneurs against these activities, but not everyone follows suit. Here are a few ways, through which you reduce the possibility of a personal audit:
First things first, audit your tax return before submitting it. Recheck your returns from the perspective of the CRA itself and try to find loopholes in your numbers before the CRA does. The flaws in your calculations could easily be the result of silly errors on your part. But, that won’t stop the CRA from penalizing you all the same. Lastly, don’t forget to verify other relevant information such as your Social Insurance Number (SIN Number) or your residential address. Such unusual mistakes lead the CRA to review your activities more closely, and that’s the precise reason why some choose to rely on a tax specialist to ensure there’s no loophole to be found.
Tax specialists know that the CRA will eventually find all information pertaining to your income. That’s the precise reason why it’s important to be accurate (and honest) about all the income you generate. The income you generate also includes the dividends, commission, and interest you earn. A reliable way of being accurate with your numbers is that you collect and file all receipts as a habit and make them available to your tax specialist. Not every self-employed person is well-versed with the tax return framework and that’s when you must rely on professional help.
The CRA is accepting of losses from those running their own businesses, since suffering a loss is a part and parcel of running a business. However, the CRA should be convinced that you’re running your business with reasonable expectations of generating a profit. Furthermore, expect the CRA to get in touch with you if you’re incurring losses for consecutive years since that qualifies as a ‘suspicious activity’. To be convincing about your expectations of generating a profit, regularly prepare forecasts and plans of how you expect to generate profits through the course of a year.
There’s a lot to talk about here. Firstly, it’s important to be aware of the expenses you can deduct from your return and those that you can’t. For instance, claiming your personal expenses isn’t legal and doesn’t qualify as the expenses that you can deduct. And secondly, it’s imperative that your expenses remain consistent over the years. Any significant divergence or leaps in numbers are sure to catch the attention of the CRA. For instance, if you’re displaying a twofold increase in your traveling or entertainment expenses, you can be sure that the CRA would notice. As a rule of thumb, it’s best to be backed with all valid paperwork, receipts, and slips of all the expenses you’ve incurred over that specific period.
Some businessmen believe accepting cash payments will rid them of paying taxes. While that’s technically correct, doing so is a risky practice. The problem with offering services for cash payments is that this renders you vulnerable against those who won’t refrain from approaching the CRA to report such activities. Ask a tax specialist about the implications of doing so and they will tell you about the set of applicable penalties.
You can be sure that the Canadian Revenue Agency is aware of the specific industries where there’s a higher likelihood of cheating, and they have their ways to verify their set of suspicions. In any case, you should know that there are repercussions of cheating and the penalties range from a significant sum of fine to time in jail, depending on the nature and extent of your cheating. Also, once you’re on the CRA’s radar, there’s a high likelihood that they will use the microscope the next time they’re going through your returns. Yes, there are ways through which tax can be saved, ways that don’t involve cheating. Ask your tax specialist about it.
“How are they gonna audit what doesn’t exist?” said the ignorant fool as the tax specialist shook their head.
A commonly held argument is that the absence of a tax return is a simple safeguard against the threat of a tax audit. However, to think that the CRA isn’t aware of the existence and specific details of such individuals is to gravely underestimate the CRA. Those who don’t file their tax returns risk being imposed with steep interest and penalties, not to mention a trip to the jail. Ask your tax specialist why it’s not a good idea to not file tax returns to get a more elaborate response regarding the damage you risk in the process.
It’s not like you can’t file your tax return on your own. It’s just that the ramifications of making errors in your summary are severe, regardless of how pure your intentions are. Additionally, a tax specialist is capable of helping you out with ways through which you can possibly save some of those hard-earned dollars. You can rely on a tax specialist – and their tax shelter accountants – in order to negate the possibility of a personal audit.
Sincerely following the above-mentioned steps makes it very unlikely that you would be approached by the Canadian Revenue Agency. Contact us for professional guidance from tax specialists well-versed with the workings of the taxation framework in Canada.
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