Any number of factors can lead to a taxpayer being audited by the Canada Revenue Agency (CRA), but some “red flags” may make certain people more likely candidates, says Toronto tax litigation lawyer David J. Rotfleisch.
“It can be based on a business or industry that is being targeted, for example, building trades or restaurants which could deal in cash, or it could be a high level of deductions or losses,” says Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation.
As the CBC reports, other ways taxpayers are attracting the CRA’s attention include, not reporting income from a T-slip, or ignoring the CRA’s requests for information.
Another “attention-getting trigger” for the CRA, says the CBC, is being self-employed, namely in those professions where cash often changes hands.
Rotfleisch agrees that self-employed taxpayers are at an increased risk of being audited.
“Even if they are honest, they are more prone to make mistakes. They also have the opportunity, in some cases, to have unreported cash sales.”
As such, taxpayers who have realized they have made an error in their tax return should be sure to correct it with the CRA as soon as it is identified, says Rotfleisch. If necessary, he says, "do a voluntary disclosure to avoid penalties, prosecution and reduce interest.”
Ultimately, he says, as soon as a taxpayer realizes they have a material error or are being audited, they should contact a tax lawyer.
In Canada, the law is clear about the treatment of income received from tips and gratuities. All tips and gratuities are taxable, and it is your responsibility to track and report any amounts received.
Good record keeping is the most important record for your cash business. It can help you protect your business, measure your performance and maximise profits. This record can source documents, both physical and electronic, that specifies transaction dates and amounts, legal agreements, and private customer and business details. A record keeping system makes it easier to capture information, generate reports, and meet tax and legal reporting requirements.
Freelancers are more likely to be audited than a big corporation, mostly because there is a larger likelihood of mistakes on tax returns. With that, make sure you or your tax preparer understands how you conduct your business.
"These articles provide information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."