Life happens. Part of life for a business is the potential of getting audited. Consequently, sometimes, audits happen. As with most things, there are a few ways you can try and avoid an audit, but if one inevitably happens, it’s best to be prepared. Here are a few ways to prepare for a CRA audit and some key things to do to avoid one altogether.
What Are They Looking At?
We Part of preparing for an audit is knowing what an auditor will look for. An auditor is looking at your source of income as claimed vs. bank statements and deposits. They also review any interest or loans, payroll records, and expenses and deductions that you filed. Be aware that an auditor may look at your personal finances as well as your business’ finances.
Keep It All Organized
If you do nothing else, keep your records organized. Keep receipts and paper records for at least four years. Don’t just throw everything in a file or a corner of your office, either. Keeping your records organized will help you feel more prepared and far less stressed if an audit does happen.
Be Strong & Decisive
When you speak with an auditor, always be friendly, but also ask for clear direction, expectations, due dates, and that all questions be in writing. This will help you to remain organized and give you time to answer all questions correctly instead of feeling rushed on the spot. Only provide what is asked for. Don’t hand over all the paper you’ve ever saved for the company or rattle off a long list of expenses that come to mind. If you’re asked to provide specific items, only give those.
Avoiding CRA Audit Triggers
The best way to handle an audit is to avoid one in the first place. A few key moves could be signals to the CRA of some funny business. These CRA audit triggers are necessary to keep in mind all the time when conducting business and filing your taxes annually.
- Self-employment. Being self-employed is automatically a red flag to the CRA. Our best advice to mitigate an unwanted audit if you’re self-employed is to have an accountant look over your finances or help you file your taxes.
- Consistency. Make sure your tax claims are consistent from year to year. Big jumps in donations could be a trigger, even if you simply had a good year and want to donate. Keep in mind that too many deductions are also considered a red flag.
- Multiple people making claims. If you have a partner or spouse claiming the same items, you could be painting a bullseye on yourself.
Bring In Some Help
Audits are stressful. Having an accountant who has been through the process before and has a better understanding of the procedure can help you efficiently manage an audit. An accountant can also act as a buffer between the auditor and yourself and act as a coach, helping you to deal with questions and record keeping.
If you’re facing a CRA audit or want to become more prepared for one in the future, our team is here to help. Get in touch with one of our qualified accountants today to plan for any potential speed bumps in the future.