CRA Audit Triggers You Should Avoid
For business owners and individuals in Canada, the term “CRA audit” can cause significant anxiety. While the Canada Revenue Agency (CRA) doesn’t randomly select files for audit, there are certain red flags—known as audit triggers—that increase your chances of being scrutinized. Understanding these triggers and working with experienced professionals like Bhatia Professional Corporation can greatly reduce your audit risk and help ensure full compliance with tax laws.
What is a CRA Audit? A CRA audit is a detailed review of your financial records to ensure that your tax returns are accurate and that you’ve met all your obligations under Canadian tax law. Audits can range from correspondence reviews to comprehensive, in-person examinations of books, receipts, and bank accounts.– Anil Bhatia
Top CRA Audit Triggers You Should Avoid
1. Large Discrepancies in Reported Income
If your reported income significantly differs from industry averages or previous years, it may raise red flags. For instance, a restaurant owner reporting half the average income for similar businesses in the area could trigger a CRA review.
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- How Bhatia Professional Corporation Helps: We benchmark your business against industry norms to ensure your filings are realistic and defendable.
2. Excessive or Unusual Deductions
Overstating business expenses—especially for meals, entertainment, auto use, or home office costs—can draw scrutiny. If your deductions seem disproportionately high for your income level, the CRA may want proof.
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- Our Support: We provides accurate categorization, documentation, and justification for deductions to ensure audit-ready claims.
3. Consistent Losses in a Business
If your business files losses year after year, the CRA may question whether it’s a legitimate enterprise or a hobby. This is especially true for sole proprietorships and rental properties.
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- Bhatia Professional Corporation Insight: We assist in structuring your business appropriately and guide you on when it’s time to incorporate or change your tax strategy.
4. High Cash-Based Transactions
Businesses like salons, restaurants, or contractors that primarily deal in cash are more likely to be audited. The CRA pays special attention to industries with underreported income risk.
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- We Mitigate Risk: Our accounting team helps implement point-of-sale systems and proper record-keeping for cash-intensive businesses.
5. Mixing Personal and Business Finances
Using business accounts for personal expenses—or vice versa—can create confusion and potential audit issues. The CRA looks for clean, segregated accounts.
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- Bhatia Professional Corporation Best Practices: We guide clients to maintain proper separation of accounts and ensure financial records are clean and traceable.
6. Inconsistent or Missing GST/HST Filings
If your GST/HST filings don’t match up with reported revenue or if you fail to file altogether, it signals non-compliance.
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- Our Compliance Guarantee: We handles your GST/HST registration, filings, and reconciliations to avoid mismatches and late penalties.
7. Large Charitable Donations
Significant donations relative to your income may trigger a review, especially if you’re claiming high credits without proper receipts.
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- Audit-Proof Support: We verify donation receipts and ensure all claimed contributions meet CRA eligibility.
8. Unreported Foreign Income or Assets
If you own foreign property or earn income abroad and don’t report it properly, you could face penalties and an audit.
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- International Tax Expertise: We help clients report foreign income and assets in full compliance with Canadian tax laws, including Form T1135 filings.