Why am I being audited? Personal Tax Audit Triggers

Approximately 85% of personal tax returns are filed electronically.  Canada Revenue Agency processes these returns fairly quickly and many people have received their refunds.  However, the process doesn’t end there.

Canada Revenue Agency may revisit your return in July and request further information. Since a majority of the personal tax returns are filed electronically, no actual receipts are submitted. They may ask for proof of RRSP contributions, charitable donations or childcare expenses. This is not a tax audit but simply a request for information.

Canada Revenue Agency will take a closer look at your tax return if something seems out of the ordinary.

Here are Some Red flags for Canada Revenue Agency

You’re Self-Employed

Canada Revenue Agency wants to ensure that you have declared all income and that expenses are all business-related. They are particularly interested in cash operations (restaurant, retail, construction). The Canada Revenue Agency has the ability to compare your business with others in the same industry. If anything appears unusual they ask questions

You Reported Large Changes

Substantial changes in your tax return from one year to another will certainly raise questions.

You Show Continuous Losses

Reporting losses from a business or rental property for several years will raise some questions. The Canada Revenue Agency will want to know if there is any chance for a profit.

Comparison to Others in Similar Industries

As noted previously,Canada Revenue Agency has the ability to compare your return with others. If you are reporting income of $50,000 a year and living in a neighborhood where the average is $200,000 a year, then they may have some questions for you.

You Report Large Expenses

Claiming of significant expenses will cause an enquiry. The Canada Revenue Agency will request receipts to ensure expenses were incurred to earn income or to ensure that the deduction is legitimate.

Aggressive Tax Planning

Canada Revenue Agency takes a dim view of aggressive tax planning. If you have participated in a tax shelter, donation scheme or other aggressive tax planning, you will be audited.

Other Expenses

You must keep a log if you are claiming automobile expenses. Claiming more than 15% of your residence as a home office will also raise some questions.

Contact the auditing and accounting experts at Hogg, Shain & Scheck for more information.