How to Prepare Your Small Business for a CRA Audit
Running a small business is full of responsibilities and one of the biggest headaches a business owner can face is a Canada Revenue Agency (CRA) audit. An audit can be scary, but with the help of a small business accountant Vancouver, you can get through it with ease and minimal stress. A CRA audit is a review of your financial records, tax filings, and compliance with tax laws to make sure everything is accurate and legit. Here’s how to get your small business ready for a CRA audit and be compliant.
Accurate and Organized Records
The foundation of any audit is accurate and up-to-date financial records. CRA auditors will review your financial documents to make sure they match your tax returns. So the first step in preparing for an audit is to make sure your books are up to date and accurate.
Keep detailed records of all your business transactions including invoices, receipts, bank statements, payroll documents and any other financial documents. Make sure to separate personal and business expenses as mixing them can cause problems during the audit. Store these records digitally in an organized manner will make it easier to find them when needed.
CRA recommends you keep records for at least 6 years after the tax year they relate to. Having complete records will allow you to prove your financial activities if questioned.
Accurate Tax Returns
Accuracy is key when filing taxes. Inaccurate tax filings are one of the most common reasons for a CRA audit. Before submitting your tax returns, check all the information, income, deductions and credits to make sure they are correct. If you’re unsure about any part of your return, consider hiring a small business accountant Victoria BC to help with the tax preparation.
If you find out you made a mistake after filing, it’s always better to correct it before the audit. Amend your return as soon as possible and notify the CRA to avoid penalties or further scrutiny.
Stay in Touch with the CRA
If the CRA selects your business for an audit, you’ll receive a letter explaining the process and what documents they need to review. Respond to this request promptly and professionally. If you need more time to gather the documents, you can ask for an extension. Keep all communication with the CRA clear, concise and documented. Any delays or failure to provide the requested information will raise flags.
Make sure you or your accountant are available to answer questions from the auditor during the audit process. Being cooperative and transparent will show your compliance and make the process easier.
Know Your Rights and Obligations
As a small business owner, you have the right to ask questions about the audit process and request a fair and respectful review of your financial records. The CRA can’t demand unreasonable documents or invade your privacy and you have privacy rights under the law.
You also have the obligation to provide the documentation and information they request. Not cooperating with an audit can result in penalties and further scrutiny. Educate yourself on the CRA audit process to minimize stress and be prepared for everything.
Consult an Accountant
If you’re concerned about an upcoming audit or if you’ve been selected for one, it’s always best to consult with an accountant or a tax professional who has experience with CRA audits. An expert will review your records, ensure compliance and represent you if needed.
A tax professional can also help you identify potential red flags that may attract CRA attention such as claiming too many deductions or inconsistencies in financial reporting. Having an expert on your side will make the process easier and less stressful.
Stay Cool and Professional
Lastly, stay calm and professional during the audit. It may take time but being organized, cooperative and proactive will minimize the disruption to your business. An audit doesn’t mean you did anything wrong and many audits result in no additional taxes owed. By being prepared and responding properly, you’ll show your compliance and put your business in the best position to pass the audit.
Summary
An audit can be a scary process but preparation is key. By keeping accurate records, having correct tax returns and knowing your rights and obligations you can handle the audit with ease. In addition, get a small business accountant to guide you and keep you on track. Proper preparation will not only get you through the audit, but also keep your business compliant with Canadian tax laws and set you up for success.