3 CRA Audit Triggers and How to Avoid Them
Unreported Income
Not reporting all income, including T-slips and self-employment earnings, can trigger an audit. The CRA receives information from various sources, such as employers and financial institutions, which they compare against your reported income. To mitigate this risk, keep detailed records of all income streams, including cash payments, freelance work, and any side gigs. Utilize bookkeeping apps like Zoombooks or spreadsheets to track your income and expenses meticulously. Regularly reconcile your reported income with bank statements and other financial documents to ensure nothing is overlooked.
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Unusually High Claims or Deductions
A sudden increase in claims or deductions compared to previous years can raise flags with the CRA. For example, if your business expenses spike dramatically without a clear justification, the CRA may question the legitimacy of these claims. To avoid scrutiny, ensure that all claims are consistent with your previous filings and well-documented. Maintain receipts, invoices, and other supporting documents that detail the nature and purpose of each expense. Consider benchmarking your claims against industry standards to ensure they fall within reasonable limits. If you anticipate a significant change in your expenses, prepare a thorough explanation to support your claims.
Ignoring CRA Requests for Information
Ignoring CRA requests for information can lead to an audit and complicate your tax situation. The CRA may reach out for clarification or additional documentation to support your tax return. Failing to respond can not only trigger an audit but also result in penalties or increased tax liabilities. To avoid this, regularly monitor your communications from the CRA and respond promptly to any inquiries. It’s wise to consult a tax advisor if the request is complex or if you're unsure about how to proceed. A tax professional can help you gather the necessary documentation and ensure your response aligns with tax regulations, ultimately protecting you from potential issues down the line.