Tax Audits are on rise as CRA is looking to increase tax collections and reduce deficits.

1. Complete & adequate books of records

Canadian tax laws generally require taxpayers to keep complete books and records for at least six years from the end of the year to which they relate. Failure to provide corroborating information to the CRA may leads to comprehensive tax audit.

2. File taxes on time

Make sure tax filings are completed on time. Not only does this prevent incurring penalties and interest charges on late filings, it also shows that you adhere to rules and could reduce your chances of being audited.

3. Review the tax return for Consistency

Try to keep the proportion of expenses to revenues consistent from year to year and CRA is unlikely to investigate. However, if there are wild fluctuations from one year to the next, the CRA may be inclined to follow-up with a request for information or an audit.

4. Review taxes for errors

The CRA is more likely to flag returns of taxpayers for follow-up or audit if they have found errors on a taxpayer’s return in the past. You should ensure accuracy and completeness of returns prior to filing. However, if you find a mistake after filing, be proactive and file an adjustment rather than let the CRA find it for you.

5. Investment and donation Schemes

Investment and donation schemes are targeted and audited by the CRA. Tax payers participating in these schemes have a higher chance of being audited. Such claims are red flags on tax filings. If something seems too good to be true, it likely is.

If you are self employed or running a business, chances are that your taxes are more complicated and it’s always a good idea to get help from a professional tax advisor.

(Chartered accountants based  in Mississauga and Etobicoke)