Where Canada Revenue Agency auditors find the most common tax problems or mistakes that people make, and for which tax assessments or reassessments may be issued.
Meals and entertainment: If you are deducting expenses, whether for a corporation or for yourself if you are self-employed, or as deductible employment expenses where you are an employee expenses for meals and entertainment are normally limited to 50% of the amount you pay, if you deduct the full amount of that restaurant meal, you are leaving yourself open for reassessment. If you cannot show that the restaurant meal was for a business purpose, you will get no deductions at all, rather than 50%.
Automobile expenses: Canada Revenue Agency auditors love to deny automobile expenses. If you are claiming business expenses or employment expenses for your car, make sure to keep a detailed logbook tracking the extent you use it for business or employment, driving from home to work doesn’t count, unless your home is a place of business for you. If you can’t be bothered to keep a logbook, you run the risk of having your deductions for gas, car washes, oil changes, repairs and insurance denied or severely curtailed.
Director’s liabilities: If you are a director of a corporation, anything from your own wholly-owned private corporation to a large public company, you may be on the hook if the company runs out of money. In particular, you can be assessed by the Canada Revenue Agency for any unremitted payroll deductions and for any GST / HST, the company has failed to remit . Make sure that any company you are a director of is always up to date in its source deduction and GST remittances. If you are at risk of being assessed, resign as soon as possible, and make sure your resignation is legally recorded. Once you resign, there is a two year deadline beyond which the CRA cannot assess you as director.
Capital gain or income gain: The difference between a capital gain ( only half taxed ) and an income gain (business profit) is significant. If you buy property such as real estate, and the sell it down the road for a gain you repost as a capital gain, expect the auditor to examine carefully your intentions. If your primary or even secondary purpose in buying the property was to sell it rather than to earn income from it, then your gain may become a fully-taxed business income gain. If you have bought and sold several similar properties, the auditor is likely to treat your gain as income gain no matter what your reasonable explanation, and will likely assess you a 50% “gross negligence” penalty as well. The CRA has become very hard-line about this issue on sales of homes and condos.