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How to avoid a tax audit

April 23, 2012 by admin in Money

How to avoid an auditWith the April 30th Canadian Tax filing deadline fast approaching, consider these factors to avoid being audited by the CRA.

Audit your own return
Double check all your numbers and other information in your tax return before submitting it to the CRA to avoid mistakes and questions.

Report all income
Don’t assume that if you did not receive or lost a T4, you do not have to report it. The CRA matches all T4′s received from employers to the ones in your tax return, and the ones that are not reported raise red flags.

Report cash income
If you think that you can get away with not reporting cash income, think again. Even if you don’t report it, there will be your customers or competitors who will notify the CRA of it. Besides, The CRA cross matches receipts and invoices with the businesses that your company may be drawing income from.

Matching lifestyle
The CRA is looking at whether your lifestyle matches your income. Individuals who are reporting minimum income but are driving luxury cars and buying expensive houses raise red flag for the CRA audit.

Have a reasonable expectation of profit
If filing as a small business proprietor, run your business with a reasonable expectation of profit. The CRA accepts the fact that small businesses may experience losses in the first couple of years of operation. However, by year 3 the CRA wants to see your business reporting income.

Keep your expenses consistent
If you reported business or personal expenses in the previous years at a certain level, incurring significantly higher expenses in a particular year will cause a red flag.

File your return
Do not assume that if you don’t file anything, the CRA will have nothing to audit. If you don’t submit a return, you may be requested by the CRA to file and will be penalized with fines and penalties. File on time even if you have no income to declare.

This advice is for informational purposes only. When preparing your taxes, consult with an accountant or seek advice from a tax professional.

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