Despite the fact that being audited may appear to be a random and unfair punishment from the universe, there are specific reasons why one business or individual is selected over another. The Canada Revenue Agency (CRA) employs a sophisticated assessment system that operates in the background rather than drawing names at random.
The CRA can identify returns that appear to be erroneous, incomplete, excessive, or otherwise suspicious using tools and programs that were specifically designed for this purpose. The CRA pays attention to these anomalies because they pose a “high risk.”
Avoiding the following triggers can increase your chances of avoiding the stress, inconvenience, and intrusion of a CRA audit.
1. Forgetting to report income
Not declaring your T-slip income is never a good idea. This is because any employer will issue you a T4 and send a copy to the CRA. The CRA will find out if you don’t report all of your T4 income.
By documenting every transaction that involves a cash payment—and remembering to claim it when the time comes—you may avoid making this mistake.
2. Claiming unusually high credits or deductions
Even if you’re self-employed or managing a small business, the CRA looks for consistency in your tax returns. Your return might be highlighted for review if, in a particular year, there is a significant rise in your income (or in your credits and deductions).
If the CRA shows up, making sure you’ve thoroughly documented every activity will help.
3. Refusing (or forgetting) to provide more information
The CRA will send you a Request for Information if they have any queries or concerns regarding your tax return. If you get one, resisting is pointless!
The best thing you can do to ease their worries and stop the issue from turning into an audit is to swiftly and courteously provide the information that has been requested.
4. Home office deductions that are through the roof
It appears sensible to have a home office that occupies 10% of your home’s floor area. It sounds unreasonable to have a home office that occupies half of your six-bedroom household and could lead to an audit.
Be specific, reasonable, and, most importantly, adhere to the CRA’s rules for deducting home offices when determining the percentage of your house that is used for your business or WFH office space.
5. Writing off 100% of your vehicle
If you purchase a snowplow and own a parking garage, the CRA might not object if you deduct the entire cost as a business expense. However, the CRA could find it difficult to believe you don’t use the family sedan to transport the children to playdates and soccer practice if you try to write off 100% of it.
The same reasoning holds true for vehicle-related costs: be specific, be reasonable, and adhere to the rules.
6. Overusing tax shelters
The CRA will never object to legitimate tax shelters like RRSPs or TFSAs because they are entirely acceptable. But when they stumble uncover a non-profit they’ve never heard of, alarm bells start to ring. This is due to the fact that fraudulent non-profit organizations and their questionable receipts, which are infamous for inflating donation amounts, cause thousands of audits to be triggered every year.
Make sure your selected charity is listed on the “official” CRA list of charities before making a donation. Even more so if you want to deduct your donation from your taxable income.
7. A rental property that keeps losing money
Do you rent out the basement apartment in your household or own rental properties like condos? Your expenses could surpass your rental income. For instance, reporting a loss during a year of significant renovations or a protracted vacant period is appropriate. But if losses continue for several years, the CRA will probably pay attention.
Prepare a thorough report of your expenses to support your claim.
Filing with IDM, you don’t have to worry about the outcome of your tax return. If you have any questions or concerns about your tax return, the experts at our firm can assist you out. We’ve got your back, no matter what’s going on.
