The dreaded CRA tax audit – a reality that most never want to have to deal with – and most won’t have to. However, every year the CRA conducts thousands of audits, some chosen at random, but most selected based on information provided (or not provided) by you, the taxpayer.
Here are some of the most common CRA tax audit triggers to avoid.
- Being self-employed. Yes, we know that in most cases this is not exactly a behaviour you can avoid, but it is common knowledge that, if you own a business, you’re far more likely to be examined by the CRA. This is especially true if you’re in construction, retail or the restaurant business — places where cash can change hands unrecorded.
- Recurring losses. Business that claim losses several years in a row set off the red flags for the CRA. If you don’t seem to ever make a profit, the CRA may just question your behaviour. Make sure that you are able to back up such claims.
- Not blending in. If most people in your industry make a significantly larger amount compared to what you’ve claimed, the CRA may wonder why. If you live in a ritzy neighbourhood but don’t make nearly as much as the rest of your neighbours, the CRA may question how you can afford to live there. If your income doesn’t match, or even come close, to those similar to you, the CRA will likely notice.
- Major changes. If, for the last several years, you claimed $100,000 in employment income, and now you’re all of a sudden only bringing in $40,000, the CRA is probably going to want to see proof – especially if other subsequent lifestyle changes haven’t occurred simultaneously.
- Participating in a tax shelter. If you participate in any number of programs like tax shelters, donation schemes, any very aggressive tax planning really, your chances of being audited are extremely high. Any tax haven participation is also likely to result in an audit.
Since most Canadians file their taxes online, and thus don’t actually submit any receipts or actual proof of any kind, the CRA will routinely send out requests for more information, receipts and the like. This is not an audit and shouldn’t be cause for concern. However, if you know that any of the above triggers apply to you, you might want to consider getting your documentation in order just in case.
If you’ve been informed that an audit is being conducted, don’t waste any time. Call Tax Solutions Canada today to find out how we can help you protect yourself. 1 888-868-1400.