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12 Tax Audit Triggers
3. Reporting a hobby as a business
Crocheting stuffed sheep as a novelty item in your spare time? Trying to sell a few on eBay whilst declaring your basement a sheep-making facility and reporting losses from your "business" for multiple years? You might as well paint "audit target" on your forehead. You must have a reasonable expectation of a profit and the CRA will want to see a profit eventually or those "losses" will trigger an audit.
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12 Tax Audit Triggers
1. You've cheated on a return in the past
This one's a no-brainer: if you've ever been caught cheating they're going to look at every return you file for a long time with a fine-tooth comb, and anything out of the ordinary will get you flagged for an audit.
12 Tax Audit Triggers
2. Expensive purchases on a low income
If you're collecting a lot of income under the table and declaring only a fraction of it while flying first class and parking something expensive and Italian in your driveway, you may find yourself the subject of a tip to the CRA hotline. If your income doesn't match your lifestyle, it's like waving a red cape at the CRA.
12 Tax Audit Triggers
3. Reporting a hobby as a business
Crocheting stuffed sheep as a novelty item in your spare time? Trying to sell a few on eBay whilst declaring your basement a sheep-making facility and reporting losses from your "business" for multiple years? You might as well paint "audit target" on your forehead. You must have a reasonable expectation of a profit and the CRA will want to see a profit eventually or those "losses" will trigger an audit.
12 Tax Audit Triggers
4. Excessive expenses or employment expenses
It looks pretty suspicious if you claim 50 per cent of your home expenses as business expenses. Ditto if you claim 90 per cent of your car travel for business purposes. Auto expenses, particularly, need to be logged carefully. The CRA loves it when you keep a book of how many kilometres you travelled for each meeting with a client. Those eligible for employment expenses belong to a small group, and the CRA likes to keep an eye on this. Be prepared to supply additional documentation if you have claimed child care expenses.
12 Tax Audit Triggers
5. Discrepancy in revenue
This applies to people who are self-employed or own their own business: you can't try to reduce your income by not reporting the same revenue on your income tax return as what was reported on your GST/HST return, even if you didn't collect the tax.
12 Tax Audit Triggers
6. Moving expenses and tuition transfers
This includes perfectly legitimate claims. They just insist that you prove what you spent on your move. You're allowed to claim expenses to move at least 40 kilometres closer to work, but this often triggers a request to audit that part of your return. As long as you kept your receipts (moving vans, some maintenance of the old residence up to $5,000, costs of cancelling a lease, meals and accommodations are all eligible), you have nothing to worry about. Ditto for tuition transfers: as long as you kept the T2202A form complete with signature for the tuition transfer, this one's easy to remedy.
12 Tax Audit Triggers
7. You forgot to include a T4 slip
If you earned the money, your employer will have filed a T4 slip, so if you don't file one yourself, the CRA will notice. If you truly forgot, the CRA should be satisfied once you provide it. But if you don't report income from a T4 slip two years in a row, be prepared for having your financial data looked at under a microscope, along with significant penalties. This can actually apply to failing to provide any requested information slips or receipts you referred to on your return by the date the CRA asked you to.
12 Tax Audit Triggers
8. Failing to report separation pay
Failing to accurately report separation pay will always get you flagged for a close look. It's not unheard of for an employer to screw this one up. Even if your employer failed to report it or reported it incorrectly, you have to report the amount you received. That doesn't change, even if you had it transferred directly into a Registered Retirement Savings Plan (RRSP) to defer the tax hit.
12 Tax Audit Triggers
9. Not notifying the CRA of an address change
This one bites a lot of students. The CRA will mail your return assessment to the last address they have on file and if you're not there to find out you owe money or have to provide more documentation, it could trigger an audit. And they won't be happy that they had to find you to tell you.
12 Tax Audit Triggers
10. Not following RRSP rules
If you don't follow the rules for providing RRSP contribution receipts, or if you didn't file a Schedule 7 for unused RRSP contributions, transfers and Home Buyer's Plan (HBP) or Lifelong Learning Plan (LLP) contributions, this will flag you for a second look.
12 Tax Audit Triggers
Every year, a new flurry of articles come out, written to help you save money, and get more back from the government when filing your tax return.
Everyone fears an income tax audit. But if you've filed your return and kept receipts for any deductions you claimed, you don't really have anything to fear. At worst, you may have miscalculated your tax payable, and after a review the Canada Revenue Agency may send you an adjustment to your return that requires you to pay the proper amount.
Tax season can be a difficult time.
Canadians are among the most generous people in the world, and Christmas is a time when we tend to be at our best.
Imagine this: You file your taxes, Canada Revenue Agency (CRA) disagrees with your return, you file an appeal, and CRA denies it. You ask for an explanation of the appeal decision, and you're stonewalled. You're told that if you want an explanation, you can go through the lengthy process of filing an Access to Information request. Are you stressed just thinking about it? You betcha.
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