HUNTSVILLE, ONT. -- As the April 30 tax filing deadline rapidly approaches, it isn't wise to think you can outsmart the Canada Revenue Agency. They know where you live and as we have seen over the past year, they have the ability enforce legal powers against those who don't file by the rules.
Want to avoid an audit? Here are my tips:
1. You have to file. Just do it. An incomplete return is better than no return. They will ask for further clarification or receipts and the request can't be ignored. If you do, an audit can occur and claim can be denied completely.
2. When it comes to claims there may be a tendency to stretch the truth. For example, claiming a $5,000 expense on $25,000 in sales or high mileage claims in a year when few have travelled. Due to the numerous travel restrictions this past year be sure to file your claims accurately with full details.
3. With more people working from home there are grey areas. CRA introduced a new temporary flat rate to a maximum of $400 for the year as long as you worked from home 50 per cent of the time for at least four consecutive weeks. Be very careful if you decide to tack on additional expenses such landscaping, decor, snow removal, etc.
4. If you happen to be self-employed or an independent contractor, be sure to declare all of your income and that includes cash. CRA is always on the lookout for people looking to maximize tax breaks they aren't entitled to. Also a word of caution when hiring family members. Ensure they are compensated fairly for the work provided. No overpayments -- the work has to be completed and documented.
5. It is very likely many small business owners will be claiming losses this year and quite possibly into next year. However, if you are a small business owner who has had years of losses, CRA will likely question why you continue to operate an unprofitable business.
6. Large or unusual deductions or credits will always garner attention. To be fair, they can and do happen -- just be sure to have them supported with documentation.
7. There are certain sectors in the economy referred to as the "cash economy" and are on the CRA's watch list: restaurants, construction and small retail outlets to name a few. Just by virtue of the industry you operate in, be prepared to be audited.
8. Don't "round-off" your numbers (for example $2,500 or $5,000). Nothing suggests inaccurate record-keeping more than filing with an estimate.
9. Living beyond your means - maybe? CRA compares your reported income and the industry you work in to the neighbourhood you live in. When there is a disconnect, you will likely have to explain this to CRA.
10. One of the hottest sectors in the past year is real estate. CRA has been watching this closely so if you are a house flipper, beware. Audits could be conducted around HST rebates, new home constructions, principal residence exemptions, condo flipping or any unusual transactions.
CRA has had a busy year stemming from the pandemic and just about everyone will have something different or new to report impacting their taxes. However, the savvy tax filer shouldn't assume they might be more lenient with offside filers.
CRA knows Canadians have been challenged but that doesn't mean you will get a free spot on the tax card.
