Tips on How to Not Get Audited!
Business owners have enough on their mind without having to get involved with an Audit! It’s a very time consuming process, and just a generally unpleasant experience overall.
A few tips to help to not get audited in the first place:
Audit Proof Your Business
Get an Online Accounting System
One of the easiest ways to help to not get an audit, is to stay organized. When you’re not using an accounting system of some sort, creating your corporate tax return becomes very difficult to do, and sometimes throws numbers off whack, which can be an automatic red flag to the CRA. By having an online accounting system, you connect your bank accounts and credit cards, and you know that every dollar is being accounted for properly and your books are going to make sense at the end of the year.
On top, if the CRA ever wants some information on a particular account, and haven’t come to a full blow audit yet, an accounting system has the capability to attach your receipts electronically to all of your transactions, so you can provide that info to the CRA in a timely and orderly fashion, whereby they now know that you are doing proper bookkeeping and are more likely to leave you alone.
Get an Accountant that Understands Your Industry
The CRA has sophisticated systems whereby they compare your submitted tax return numbers to all of the other businesses in the same industry as you that have also submitted their tax return numbers. If there is a huge difference between your numbers vs. the industry average numbers, that’s an automatic red flag to them, where they might investigate further.
By having an accountant that understands your industry and that has seen many numbers of other companies in your industry, they will quickly be able to potentially flag for you any figures/lines items that seem a bit out of the norm, whereby you can take a look pre-emptively before sending to the CRA, and maybe remedy the situation before it’s auto flagged.
Pay Your Tax Bills On Time
The number one reason we see clients get audited, is that they have outstanding tax bills(Corporate, Payroll, GST/HST, etc.) that are overdue. The CRA many times won’t just look at that particular area that you owe in, but will open up the can of worms to look at everything. Part of this, is also to see whether they believe that they will ever get their money(and believe me, one way or another, they will get their money!), so they will ask for your numbers/figures and review.
You can avoid them looking deeper into your books, by simply paying your bills on time. If you wanted to go a step further, and really be on their good side, make any required prepayment instalments that they have requested. Businesses that pay their instalments, and pay on time, are usually in the eyes of the CRA better managed businesses, and the CRA has less risk of not getting paid from these businesses, so they tend to more likely leave them alone.
**Disclaimer
This article provides information of a general nature only. It does not provide legal/accounting advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific questions you should consult a CPA/lawyer.