People who file their returns on time while ensuring that they have disclosed everything will hardly face a CRA audit. However, entrepreneurs in Canada are highly likely to be audited for failure to report all the sources of their income. The odds of being audited abruptly are also higher if you have had confrontations with the officials of the Canada Revenue Agency in the past. As you run your business, remember that past quarrels with your past business associates or employees could also trigger a CRA audit.
If you run a non-profit organization, such as a Charity organization, you may get a request for information from the CRA. Do not confuse this with a CRA audit. In this case the tax collector wants to review your financial information, such as the receipts for your expenses. A true auditing process is much more serious and aggressive. The Canada Revenue Agency will have gathered certain strange information about your business that it will demand to verify via a CRA audit.
Most people who have been audited feel that the process was meddlesome and stressful. To decide who gets audited, the tax collector uses a computer to generate complex algorithms that show rules in groups’ financial information like claims, credits or deductions. If your data seems very different from the group you fall into, this will raise some flags. Sooner or later you will get a CRA audit. If you work in these fields: construction, car business, hospitality, real estate, pharmacy or jewelry, there is a probability that you will be inspected often.
If you get caught evading tax, you will face severe punishments. More often than not the CRA audit will lead to more money being demanded from the culprit. They will rarely go to jail as the final penalty. In some cases, it is the accountant who computes and files tax returns on behalf of a business that will get in trouble with the CRA tax collectors. If it is discovered that they had submitted false deductions on behalf of their clients, they could easily sleep in a jail cell.
Some errors are never forgiven since you can be asked to pay a reassessed amount of money and a certain penalty. What if the CRA auditors find out that you have cheated? If it is confirmed that you intentionally cheated the CRA via false statements, or omissions, you can get a tough fine: up to fifty percent of the pending tax returns.
How can you avoid a sudden CRA audit? It is easy as making sure that all your tax returns are filed on time. As you prepare your tax returns, do explain things via short notes that can raise red flags in future. Keep the paperwork simple and direct. If the CRA officers want you to explain something, they will have to gather enough proof themselves. Do not exaggerate your deductions and expenditures. The tax collector will come after you if they think your claims are absurd when compared to your earnings. Other tips include proper record keeping, quick replying and being courteous among other things.