Come tax season brings those yearly jitters of nervousness and apprehension. Tax filing is one of the most stressful jobs for small business owners who are constantly on their toes, multitasking and handling everything from maintaining their account books to making expansion plans. And if just collecting and collating your financial documents wasn’t enough, the ever-lingering fear of a Canada Revenue Agency (CRA) audit adds to the burden.
Common Myths About a CRA Audit
But are CRA audits as scary as they are made out to be? Is the CRA watching your every move like a hawk, waiting to swoop down at your slightest mistake? Here are five common myths about CRA audits that small business owners need to understand and stop being afraid of.
Filing Tax Later Can Save You From An Audit
No, it will not. On the contrary, if you miss the deadline, you could end up paying a late filing penalty. And not filing your taxes at all is illegal. So, it’s better not to miss the deadline and timely file your returns.
Not Claiming Tax Deductions Can Avoid a CRA Audit
Another misconception related to tax filing is that applying for deductions is a sure way to attract a CRA audit. The CRA has nothing against your filing for deductions if you have all the necessary documents to prove that you are eligible for the said deductions. As a small business owner, not asking for tax deductions you are entitled to can make you lose more money in taxes than you need to. If you aren’t sure which deductions you are entitled to, you can always seek the advice of a professional accountant.
Online Tax-Filing Will Attract An Audit
Earlier, tax filing was done in physical form with endless paper documents that needed to be duly filed and submitted. Handling all that paperwork led to more trouble and errors. Now, online tax filing has reduced the number of errors. The CRA only asks you for specific documents if they need to verify certain details. Less human errors mean fewer chances of an audit coming your way, provided you’ve submitted all your financial details.
Filing For Amendments Invites Audits
Just the opposite is true. Running a small business is a hectic job and often a one-man show. In such a situation, slight slip-ups and overlooks are natural and understandable. Often, such honest mistakes happen when filing your taxes as well. However, having realized the mistake, many small business owners are nervous about filing an amendment, thinking it will invite an audit.
Two things need to be kept in mind here. Firstly, CRA audits do not happen immediately. Chances of queries regarding your present tax filings may crop up years from now. Secondly, filing for an amendment shows you are an honest taxpayer willing to come clean on his financial status to the CRA. If you notice an overlook or inaccuracy on your part in your past taxation, making an amendment will probably help avoidan audit. The CRA might ask for some documentation to verify your amended claim, but that is the official procedure and does not mean you are in trouble.
An Audit Means You’ve Done Something Illegal
Let’s keep the CRA aside for a moment. Finance is the pulse of your business. You have the best bookkeeping software and stringent security details to ensure nobody tampers with your finances. You also hire expert accountants and bookkeepers to help you figure out the best ways to make the most of your money. And, when it comes to ideal financial management, having your books of accounts timely audited is a practice that helps ensure your business is going the right way.
A CRA audit is the same thing. It does not mean you have done anything illegal. By cross-checking your claims and books, all the CRA wishes to check is that your financial transactions are an accurate and fair representation of the transaction and that you are paying the necessary taxes applicable to the transaction. In case of an unusual occurrence, like a sudden surge in income or above-average returns in your business, the CRA can conduct an audit to check.
So, again, if you have been transparent in your business and have submitted all relevant documents, there is no need to fear an audit.
Audits Are Always Bad Experiences
A common fear among all taxpayers, including small business owners, is that the CRA agents will come knocking on their doorstep out of the blue. However, this is not true at all. While the CRA does office or house checks, they never come unannounced. You will always receive an official letter from the CRA. So, if anybody claims to be from the agency turns up at your place of work, or if you receive any emails or calls asking for your social security number or any other personal details, do not share anything with them. Such scams happen, so it’s better to stay alert and understand how the CRA works to avoid falling for the trap.
Also, the auditor’s job is to ensure your financial accounting process is compliant and dealings are transparent and trustworthy. They seek your cooperation to ensure your income tax returns are filed correctly. An audit might be tedious due to all the documentation and queries, but it can be a learning experience for you as a small business owner. If you have been filing some documents incorrectly, the CRA audit can guide you on how to do it right.
However, most problems can be avoided if you have a proper accounting and bookkeeping system from the beginning. Hiring a professional bookkeeper can help on many fronts, including keeping your records and documents updated, highlighting any errors in your finance books, outlining the many possible options to make your business grow with the funds available, and handling all your CRA filings or audits. They have in-depth knowledge of how the CRA operates and know how to resolve any issues or queries that crop up in the process.
Contact Glenn Graydon Wright LLP in Oakville for Your Accounting and Bookkeeping Needs
Hire a professional bookkeeper or outsource your bookkeeping requirements to ensure your books of accounts are compliant and a CRA audit, if ever you face it, does not lead to heavy penalties. At Glenn Graydon Wright LLP, our trained and experienced bookkeepers can provide services to take care of all your bookkeeping needs. To learn more about how Glenn Graydon Wright LLP can provide you with the best bookkeeping expertise, contact us online or by telephone at 905-845-6633.