Kristin Li, Special to Financial Post | 13/06/27 | Last Updated: 13/06/26 4:21 PM ET
Tax time may have come and gone, but now it’s the Canada Revenue Agency’s turn to scrutinize millions of tax returns. As the number of small and medium-sized businesses (SMBs) continue to grow, the agency is paying particular attention to these returns to ensure tax rules are followed. Hobby, startup, self-employed, professional services and consultancy businesses are not immune. If you’re open for business, the CRA is watching.
Complaining about this is a waste of time. It is the CRA’s job to enforce tax laws and apply penalties on those they believe are not in compliance, and to seek out fraud. It is also imperative that SMBs understand the rules, and what may trigger an audit. The net sum: take tax filing seriously and be prepared.
1. Keep business and personal expenses separate. Although wider-ranging CRA audit guidelines mean auditors can look into both personal and business operations when conducting an audit, clear and separate business and personal records can score you major points.
2. The CRA sees you as an employee of your company. The habit of taking monies out of the business regularly to pay living expenses needs to stop. You now need to prepare a T4 slip for yourself, and deduct CPP and income taxes. Penalties are levied for late T4 filing and payroll remittance.
3. The CRA sees payments from the business to family members as employment. You need to make payroll deductions, and keep records. If mom fails to declare this income on her tax return, the CRA may come asking for proof. Now that would be awkward.
4. High income earners are the CRA’s favourite audit targets. Professionals such as doctors, consultants and dentists are profitable audit targets.
5. Having multiple businesses receives more attention. Buying or selling products or services in regions with different tax rates? The price paid or sales received from the related businesses can become a CRA target.
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