Top Items That May Trigger an Audit of Your Business

If there is one thing that is worse than paying taxes it is getting audited for not paying taxes. A notice from the CRA can send a chill down your spine and have your stomach doing flip-flops. Hopefully, you'll never have to be exposed to that anxiety inducing type of situation. While there is no hundred percent guarantee that your business will forever be spared an audit, there are some proactive steps you can take to avoid that process.

Here are the top triggers for a possible CRA tax audit:

Trigger #1: Mixing Business and Personal Expenses

When it comes to your business accounts and personal expenses, it is best to keep them separate. You should already be filing individual tax returns along with your business returns. Therefore it's not a stretch to keep those items separate. In the real world, the lines between what you spend for your business and your personal life can get blurred. Try to keep them in focus for the purpose of your tax returns.

Trigger #2: Paying Your Living Expenses Out of Business Profits

This is related to "trigger #1." As far as the CRA is concerned you're an employee of your company on par with all the other employees. As a result of that employment you should be getting a salary. Out of that salary you pay for your living expenses. You can't pay your mortgage out of your business profits.

Trigger #3: Failing to Make Payroll Deductions

Sometimes we employ our family members and friends to help with our start up business. There is nothing wrong with that but that doesn't mean those employees can skate on the payroll deductions. You need to treat every employee the same and that means keeping accurate records of payments and deductions.

Trigger #4: Cross Border Taxes

If you do business in the U.S. then their IRS agency will be looking over your shoulder along with the CRA to make sure everyone is getting their fair share of taxes.

Trigger #5: Invoicing Amounts Greater Than $30,000 Annually

$30,000 is the threshold that will trigger the need to register and file HST/GST/PST. If you overlook those filings you can anticipate an audit.

Trigger #6: Multiple Businesses

Your goal should be to expand your business into different regions but that can be complicated with the variant tax codes. The way around that is to set up separate companies that are region specific. That makes smart business sense but it can also draw attention from the CRA who want to make sure all those regions are being paid.

Trigger #7: Being a Success

It might seem odd that success would trigger an audit but the more personal income you accumulate the more it is thought that you'll be trying to shelter that income from taxes. The CRA is always watching!

The most important thing you can do is keep accurate records and follow the rules. That way if you are called in for a routine audit you'll have your defenses ready.

Be Prepared for Slower Growth

It sounds strange but positive thinking may not always be the best course of action. This is true most recently when many businesses have had to weather the storms of the current economic recession.

A recent survey by a major American consulting firm concluded that many businesses have failed to adequately prepare for further slow growth on the economy. While they may have taken measures to keep afloat in the current economic climate, they have assumed that better times are down the road. However, as many current indicators project that the "better times" are still at least two years away, if not more, the fear is that companies may not be prepared.

One of the problems is that preparation for long range financial problems differs from the short term. In order to balance the books presently, some businesses have trimmed administrative overhead and tried to curb spending. But, long term would mean trimming the payroll and restructuring debts. In an era when executives are trying to be optimistic about the future, these "hard-line" steps are far more difficult to make. Business executives realize that profits will be down for awhile but they truly do not expect the downturn to last that much longer. They would rather gamble on a few positive signs as indicators of sunshine rather than admit that the storm may not be over. For many companies, that outlook may be perilous.

Economists feel that we are not yet out of hot water. Cautious optimism may be the best idea but the emphasis is on caution, not optimism. It would be wise for the business community to take precautions in advance of any further problems. Be prepared to handle the economy based on reality, not predictions.

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Getting the Most Out of Your Employee Team

No, this is not a sports pep rally. However, just as in sports, success is heavily dependant upon teamwork. The higher the performance of the team, the better the chances for productive outcome.
 

     Every employer knows that one of the hardest operating challenges in business is assembling the right people for your team. Hiring unknown individuals is always a partial gamble. Therefore, a combination of instinct and skill is required to hopefully pick correctly.
 

     You've worked hard and sacrificed to realize a dream in building your business. You would like your employees to share that dream. Therefore, an employee for whom this is "just a paycheque" may not be the wisest choice for your management team. You want people who can see beyond the job.
 

     A good team player is willing and able to listen to others, as well as share ideas. There must be common agreement that the team works together under the leadership of one individual whose own goals for the business become the collective goals. Ambition in an employee is positive, provided that the ambition does carry its own agenda.
 

     Look for problem solvers on your team. There is no reason for you to carry all the weight yourself. Also, your team should feel as passioniate as you do. Share the lows and the highs become far more important to achieve.
 

     Individual roles should be clearly defined and each member of your team should know how they relate to the team as a whole. Build a well oiled-machine that functions perfectly when each part is operating in sync.
 

     Don't rely too heavily on references. Quite often, you will hear only what you want or you will be told only what someone wants you to hear. Look for the right qualities, ask the right questions, get the right feeling, and you should be on your way to assembling a top-notch team for your business.
 
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