“Audit season is here. What does that mean?”
You have filed your personal taxes and now CRA wants proof of what you have claimed, albeit income, deductions or tax credits.
Income you say?! That is right, they can audit what you report as income too. In particular, you might report income on a line where they might believe it should be reported on a different line. Why does it matter? Perhaps you reported it as other income and they consider it to be self-employed income. Again, why does it matter? Self-employed income requires you to pay CPP on those earnings, in addition to the personal tax, therefore, if you report on the wrong line, you will have underpaid the CPP portion of your taxes. Alternatively, maybe you under-reported your income and did not include cash payments for services, tips, etc. All earnings are taxable and must be reported, including casual labour like cleaning homes, etc.
CRA is now auditing based on risk and often includes lifestyle audits, meaning if you are reporting very little income but have expensive cars or homes, they could assess more income if they feel you are mispresenting how much you have earned and you are not able to prove how you live within your means.
Either way, please watch your mail as they often only give you 30 days to reply, otherwise, they will assess how they see fit. Remember, we file using the honour system so although being audited is a pain, we are required to comply or accept the reassessment as is with CRA.
Have a question? Email or call us. And remember to check out our blogs, checklists and social media pages for more information on all things small business, tax, accounting and the Tri-Cities community.
***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.