You would be hard-pressed to find someone who actually enjoys being audited.
An audit is basically the Canada Revenue Agency’s (CRA) way of making sure you’ve paid all the taxes you owe. That means getting lost on a paper trail as you dig through receipts.
You can be audited within four years of filing your return. But that doesn’t mean you’re in the clear, because the CRA can audit you at any time it suspects fraud.
There are a few mistakes tax filers can make that will get the CRA’s attention. Senior tax expert Lisa Gittens, has a list of the top 5 filing mistakes that can trigger an audit.
1) Not filing a return
Gittens says everyone needs to file, whether you owe money or expect to get a refund. Failing to do so makes the CRA think you have unreported income.
“For businesses, showing an unreasonably low reported income or frequent losses are likely to trigger an audit, and may cause the CRA to initiate a ‘net worth’ or arbitrary assessment, where they use their skills to determine what your company's actual value,” Gittens said.
2) Filing with the wrong marital status
This is important because your marital status determines a number of credits and benefits you are eligible for. Gittens says if you screw this one up, the CRA could want to check to see if you owe back payments. She says it can also affect your benefits in the future. False statements can also result in a penalty.
3) Missing information
Typos and missing slips will likely get your return flagged. Gittens says the CRA’s online portal called My Account is a good way to monitor and download slips. She says it’s also important to include all of your income.
“Even if it's not on a t-slip; casual labour such as babysitting must be reported on Line 130, business income is reported on a T2125 and rental income is reported on a T776,” said Gittens.
“Tips earned must be reported on Line 104, and it is meant to be the actual number (not just an estimate) so keep a log book as proof of your amount.”
She says not reporting income of $500 or more on this year’s return will affect past returns as well.
4) Not keeping receipts
Gittens says slips for expenses like business receipts, child care, and medical expenses should be kept for at least 6 years after you file.
“Canada Revenue may assess you and ask for a copy of your receipt even when the return is 100% accurate,” said Gittens.
“It's a formality and you only need to submit the receipts if you are asked for a copy. It's important to submit the receipts within 30 days or you may receive a notice that all items on the return are now being audited.”
Without documentation, your claim will be disallowed and you’ll also have to pay interest on the money you now have to give back to the CRA.
5) Not filing on time
The deadline for individuals to file is April 30th and June 15 if you’re self-employed. Gittens says submitting after the deadlines will increase your chances of being audited. It also gives you time to work things out with the CRA before you start racking up interest charges.
While these are examples of actions which can trigger an audit, it's important to note that, in this age of electronic filing, the CRA randomly conducts audits of personal tax returns for any reason. This DOES NOT mean you have done anything wrong. They are just making sure you have the necessary information to support what you said on your return. 99% of the time, this is just a matter of sending in all the paperwork used in creating your tax-return. We strongly recommend you come in and review what is being asked of you before you communicating with the CRA. While there is usually nothing to worry about, it's important to remember that the people on the other end are not looking out for your best interests specifically.
Even if we didn't initially prepare your tax return, we are always here to provide you with the best advice and support throughout the year. Let us worry about the details.