ByNancy
Red Flags and the CRA (Part 1)
The CRA scrutinizes the tax returns of small businesses especially closely, so Canadians who are self-employed always have a higher risk of being audited than those who are employed by others.
And while there’s no sure-fire way to avoid a CRA audit, you can cut down the odds by avoiding known audit triggers.
If you want to decrease the chances of your small business being audited by the CRA, avoid these attention-drawing triggers on your income tax:
1) Revenue discrepancies.
Be aware that your revenue will be compared across all tax forms, so the revenue you declare on your income tax form will be compared with the revenue declared on your HST tax return, your spouse’s tax return, and “information on tax returns with information provided by employers, financial institutions, and other third parties”. If they don’t match, it’s audit time.
2) Being an outlier.
Declaring business income that’s significantly higher or lower than the norm in your industry will also immediately draw interest. The CRA has extensive information about the profit margins and incomes for various industries and will compare your income to what’s “usual” for such a business.
3) Deducting large business expenses.
While being able to deduct business expenses from your income tax is one of the big tax advantages of operating a business, you need to be cautious about it. Advertising and promotion, meals and entertainment, travel, miscellaneous and interest expenses are of particular interest to the CRA, according to G&R CPA in Halifax.
Learn the ins and outs of claiming meals and entertainment expenses.
4) Changes in shareholder loans and large balances.
Corporate business owners also need to take heed that changes in shareholder loans or debit balances are red flags too. The CRA looks for personal expenses recorded as business expenses and loans taken from a company.
5) Having family on the payroll.
There’s nothing wrong with having your spouse or child work as an employee in your business; this kind of income splitting is perfectly legitimate – as long as you follow the rules. The problem is that many small businesses don’t, making small businesses that put their spouse or child on the payroll an easy target.
The family member must be active in the business, maintain employee records and salary be comparable to an outside person doing the same job.
ByNancy
Blog: Feeling Overwhelmed?
On a completely different note:
Have you recently had one of those days (or few days) where you just can’t seem to get motivated?
At times, I find it very difficult being an entrepreneur, responsible not only for my own livelihood but also for my staff, who I care for deeply. Often we are told by those who have never been entrepreneurs, “Oh, it must be so nice to have your own business. You can set your own timetable, take time off when you want, write off expenses, be your own boss…” I’m sure you have heard all of this and more. What non-entrepreneurs don’t realize is that the buck starts and stops with us and, at times, it is an overwhelming burden to bear.
There are days you just want to get off this train, but you can’t. What to do?
Well you could shut it down, which I would say rarely, if ever, enters our minds. That’s just not in our entrepreneurial makeup.
So, I thought I would share with my fellow entrepreneurs what works for me:
- Take time to Google uplifting thoughts, images, music, or whatever helps you find peace. Music is extremely soothing for the soul. It can be something lively to perk you up, something that resonates with you (for me, it is always wonderful Italian tenors), something that brings back great memories, anything you can find which will get you out of your funk. Don’t beat yourself up for taking a few minutes away from the daily grind to look for this. In the long run it can improve your productivity.
- Prayer (perhaps it is politically incorrect to mention this, but hey, it’s my blog and I’m giving ideas on what works for me). Prayer does help me, especially before bed, asking for tomorrow to be a better day (I did it last night and am more motivated today – what can I say?)Also, remember to always have some gratitude mixed in. There are so many things we can be grateful for if we just take the time to look around. It could always be much worse!
- Set your alarm on your phone. Sometimes to get through work that I have to do, but don’t particularly enjoy, I set my alarm for one or two hours. If I work consistently during that time, once the alarm goes off, I reward myself with something. It may be grabbing a great Chai Latte, taking a few minutes to chat with a friend, if you are in your home office (which is always a more difficult environment to get motivated – don’t ever listen to what others say) taking the time to do that 15 minute chore you want to get done. The point is – take a pleasurable short break! Then repeat the process.
- Take the time to download or listen to motivational talks. Look for topics that you are interested in, not one you think you have to or should listen to. I enjoy interesting new scientific research on animals, or conservationism. Sometimes they’re spiritual, rarely are they financial. The idea here is to heal your soul. Once that’s in a good place, everything else will follow, in business and otherwise.
- A good walk in the fresh air – preferably with nothing in your ears (as in iPod, Phone, etc). Just enjoy the fresh air and your surroundings. Appreciate the environment you’re in. (And, hey! In this case the non-entrepreneurs are correct. We can take a bit of time out when we want to.) For me it always works better when I have my dog to walk with. He brings me such joy, grounds me. The other day the sky was so beautiful (finally), not a cloud in sight! If it weren’t so cold, it would’ve been a perfect summer sky. It helped me unwind and regroup.
Winter can be a particularly hard time for us Canadians. For those of us who have no choice but to work during February/March when many snowbirds have the luxury of heading south, the blues and procrastination can get worse. I have a few ideas to help with that:
- Invest with a solar light. Mine is called a “Happy Light”. It helps to brighten up my office (and me!)
- I am no doctor so always check with one first, but I find Vitamin D (which we are lacking during this time) and multivitamins help give me that little boost I’m looking for.
- If you can, take time to book a trip for when you can get away and book off this time in your calendar. It gives you something to look forward to and motivates you to get your work done to meet your deadlines. Also, there is fun in the planning!
I hope these tips help you. Remember, soon it will be summer! And I encourage you, the fellow entrepreneur, to every so often in the middle of a week that the sun is shining – get out there and enjoy it, every bit of it. Because apparently we are being told by those not truly in the know we’re allowed to!
ByNancy
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