Worried about being audited by the CRA? Roughly 30,000 Canadians a year receive the dreaded letter in the mail stating they’re about to be audited. But there are ways you can lower your risk of being one of those unlucky people. Here are the top four.
Trust but verify. The old Russian proverb is a favourite marching order of the CRA. And verify they do. While any Canadian has the potential to be audited by the CRA, there are some who are at higher risk simply due to the nature of their profession or finances. This includes:
- Those who are self-employed
- Those who work in construction, retail, or the restaurant industry
- Those with offshore assets
Even if you don’t fall into one of these three categories, there’s always the chance you could find yourself on the receiving end of an unsettling letter from the CRA. Here are the top four ways to reduce your chances of that happening, courtesy of our Chestermere accountant.
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4 Ways to Reduce Your Risk of Being Audited
While there’s no foolproof way to completely eliminate your risk of being audited by the CRA, there are a few simple things you can do to reduce your odds of having it happen. Read on to find out what they are.
1. Don’t use round numbers when claiming deductions
Anyone who has had to declare the things they’ve bought abroad while going through customs can attest to this sound strategy. CRA auditors and CBSA agents are equally skeptical anytime they come across nice, round numbers. It’s an immediate red flag that makes them believe the person who filled out the form doesn’t know exactly what the true numbers are. Try to be as exact as you can when it comes to claiming your deductions, and instead of using a number like $5,000 opt for one that’s more realistic, such as $4,892.
2. If you can, file electronically
While it can be tough to ditch the paper method of filing your taxes if it’s all you’ve ever known, doing so electronically will lower your audit risk because the programs and software are designed to catch errors. Which could be the difference between the CRA waving your return through or flagging it for closer inspection. The CRA hates when you make errors. Especially math ones. Know who’s good at not making math errors? Computers.
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3. Make sure you report all your income
It can be easy to forget about that freelancing gig you did which paid you a modest sum of money under the table. But if you’re looking to reduce your audit risk the best you can, it’s crucially important that you report all your income to the CRA. No matter how miniscule or insignificant it may seem. This goes for any interest you may have accrued from investments too. The CRA will not look kindly on those who hide any income, especially if it’s a large amount.
4. Don’t wait till the last minute to prepare your taxes
One of the biggest ways you can increase your risk of being audited by the CRA is to rush through preparing your taxes. As you rush to beat the deadline, you’ll be more prone to making mistakes and inadvertently raising a host of red flags for the CRA to raise their eyebrows at. We always recommend to our clients that they should begin working on their personal taxes at least a month before the filing deadline. This gives them enough time to make sure they have all the necessary receipts and forms well before it gets down to crunch time.
TOP TWO TAX TIPS FOR CANADIAN SMALL BUSINESS OWNERS
Need Audit Assistance? Our Calgary Tax Accountants Can Help!
Do you need more advice on how to avoid an audit? Or require audit assistance for your small business, non-profit organization, or corporation? We can help make the process of auditing as smooth, quick, and efficient as possible.
To find out more about our tax services, and how we can take this responsibility off your shoulders so you can focus on other aspects of your business, contact us at (403) 605-6887 or fill in our online contact form.
