As a small business owner, you now feel like you have the control to be successful. Many small businesses fail not because of a bad idea or mismanagement, but rather they get themselves into hot water with Canada Revenue Agency and then do not have the funds or the knowledge to dig their way out. You may be tempted to write off 100% of your vehicle costs or deduct that family vacation under travel costs for your business, but CRA is always watching and analyzing business trends, costs and profitability. Don't expect CRA to ignore the fact that you are living in a $650,000.00 house but only showing $30,000 in annual income. That is you, the small business owner, waving your wings at CRA is begging for an audit. A construction company centered in the Ottawa Valley would be hard pressed to justify a Jamaican holiday for two adults and two children for a week. It's not enough to say "I worked while I was there," just ask the many that have tried. A reversal of a deduction on your income tax forms will almost always trigger an HST audit, which is often more in depth AND more costly and that is because CRA knows if you wrote it off in your business expenses, you probably also deducted the Input Tax Credit from your HST filing as well. So now you ask yourself, how can I stay out of the auditors magnifying glass. The best business practice is to be honest. Don't try and write off your entire basement square footage, when all you use is the 8 x 8 room in the corner. If you only use your car occasionally for business, keep good records including mileage/purpose/people records to justify the expenses you do write off. When in doubt, ask a professional if the expense would survive an audit. Most importantly, keep good records! 7 year cycling out of records is the best practice. When CRA comes calling, you will be ready with proper record keeping and be able to answer all their questions and requests expeditiously. Michelle Gibson, AuthorSpending much of the last 35 years in business accounting and management, I have once again taken the entrepreneurial leap. My focus is on small business, especially start ups and has the direction and tenacity to teach newcomers to the business world how not to make mistakes. Categories |
Michelle GibsonAfter over 30 years in business management roles, I want to help other businesses grow and succeed. If I can keep one small business from making common mistakes, I will have helped them immensely! Archives
October 2021
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