A most basic audit where the auditor is looking for actual donation receipts or child care receipts or employment expense receipts, etc. claimed on your personal taxes. It is very limited to few items on your tax return as these audits are random, but could become a full-blown audit if not responded within the time frame and with proper documentation. We make sure when we prepare your tax return to guide you completely upfront so when you get selected for a random audit, you are ready to provide documents to the auditor. We will always be ready to help you whatever the case may be.
A Corporate Audit is different from personal tax audit. Usually CRA gets information from GST/HST audit or payroll audit or from a related party audit or it could be random. This is considered a serious audit as a senior officer is assigned to your file and he or she can ask anything being reported or claimed on your corporate tax return. For example, an auditor can ask for invoices and proof of payment for professional fees, purchases, automobile expenses, payroll expenses, insurance expense, meals and entertainment, claimed on your corporate return to make sure only business expenses were claimed by your accountant and no personal expense ran through company account and not accounted for personally.
They can also ask for sales invoices, ledgers, third party statements, loan agreements, etc. to reconcile it with bank deposits and with GST/HST returns filed to make sure income is not understated or not reported in the proper period. We know what the Auditors are looking for and what information to provide them so they stop sneaking here and there unnecessary. We also know your rights as a taxpayer and have the experience in dealing with the auditor and know what to say and what not to say during the Audit.
This is where a GST/HST officer has doubts on GST/HST reported in comparison to sales figure reported on your GST/HST Returns. They are also verifying if the Input Tax Credit commonly referred to as ITC is actual or it’s just a made-up figure reported on your GST/HST return. For example, common mistakes many accountants make is not reconciling sales reported on corporate return to GST/HST return filed such as sales reported in corporate return is $1,000,000.00 and sales reported in GST/HST return is $870,000.00. It leads to a direct GST/HST audit. Another common mistake is when ITC claimed is too high in comparison to the industry and to previous GST/HST returns and or claiming refunds on the GST/HST returns.
Sometimes all CRA is asking for are sales invoices and ITC ledgers, then the audit can be resolved easily. Not replying to them professionally and on time can lead to full audit. The problem comes when a taxpayer doesn’t have proper books and records to support their claim on their GST/HST returns. CRA officer can then assess the returns to a very huge amount and will charge you interest and penalties if you do not explain your side and provide the documents in a proper format. These balances then pass on to collection officers who use every power in their hands to collect these balances and make your life miserable. Finally, if you don’t pay or make arrangements with them, they can stop you from running your well-established business. How we help our clients? We review the CRA letter, figure out the issue, speak with CRA auditors and prepare the documents if nothing is prepared already to submit to CRA and face Canada Revenue Agency Auditors. Your job is to provide us with as much as information as you can so we can prepare your file as best as we can to resolve this issue at the first stage so it does not escalate to unnecessary CRA assessments or bank liens. We have helped many clients during this stressful time and we can help you too. You need a firm who knows and have the hands-on experience to deal with Canada Revenue Agency.
When a corporation or a sole proprietor who has an active payroll account (RP0001) does not make monthly or quarterly (if eligible) payroll deductions (CPP, EI and Tax) for the employee’s payroll as required per Income Tax Act, then CRA may audit the taxpayer and request to produce the bank statements to make sure proper withholding taxes are deducted and remitted to CRA for owner’s withdrawals and payments to employees. The CRA has a strict policy and heavy penalties are assigned for non-remittance of payroll deductions before 15th day of following month for previous month’s deductions.
The penalty is:
- 3% if the amount is one to three days late;
- 5% if it is four or five days late;
- 7% if it is six or seven days late;
- 10% if it is more than seven days late, or if no amount is remitted.
We will make sure the Auditor does not treat various payments to shareholders for reimbursement of loans or expenses, and treat them as salary payments to owners and explain each transaction to Auditor during the Audit for favourable outcome.
Most businesses are required by law to register for Workplace Safety Insurance Board (WSIB) unless you fall under one of the businesses who are exempt from WSIB registration. Normally a corporation must pay WSIB premium for every contractor or employee corporation hires unless a corporation request a WSIB clearance from the contractor hired to do the job. If you do not make quarterly WSIB payments or understate the insurable earnings on your WSIB returns, then you may find a WSIB field Auditor knocking on your door. The penalties are huge. You may be exempt from WSIB premiums to certain payments to contractors, but may end up paying WSIB on their behalf because the WSIB Auditor says so. We have dealt with many WSIB audits and know what they look for during the Audit. We do not recommend taxpayers dealing with WSIB Auditor on their own as the incorrect assessments by WSIB Auditor far exceed our cost of dealing with them.