many CCPCs have received a letter from the CRA to review expenses deducted during the 2019 fiscal year
This press release was orginally distributed by ReleaseWire
Vancouver, BC — (ReleaseWire) — 12/14/2022 — Small businesses prepare–there’s a wave of CRA audits going round. Small businesses with fewer than 500 employees make up a big part of Canada’s economy. Many of these small businesses are Canadian-controlled private corporations (CCPCs). To survive and thrive, small businesses must be agile and responsive to changing local and international economic conditions. The pandemic-related employment shrinkages mostly affected small businesses. As Canadians try to move forward, CRA is also moving forward with many audit letters.
CRA Audits – Documents Required
In October, many CCPCs received a letter from the CRA to audit expenses deducted during the 2019 and 2020 fiscal year. Unlike past audit expeditions, this current wave of audit letters is not limited to auto or meal expenses only. It appears that any material operating expense is being reviewed, including advertising or travel, to name a few.
Regardless of the expense being reviewed, the required documentations are generally the same. The most important one is a detailed listing of the transactions with a total that agrees to the amount deducted on the corporate tax return. The review could turn into a drawn-out process if this report is unavailable. Worse, CRA could expand its review scope. Suppose a taxpayer confesses to the CRA that this report is not readily available or the one available does not agree to the reported amount. In that case, this indicates that the taxpayer’s books are not in order, which often leads to automatic review scope expansion.
CRA Audits – Proof of Payment
The next document CRA asks for is, of course, the receipts to show proof of payment. Generally, only the top 10 most significant line items must be supported with a receipt—also an explanation of why the expense was incurred. Hence, a meal with a vendor or a trip overseas to meet a client needs to be explained. Of course, if relevant, the CRA would also request logs for driving or travel. Another factor to note is a visa receipt without an actual invoice is generally not accepted by the CRA. Many CCPCs have one individual shareholder or one family group owning all the shares. Proof of payment for goods and services must be in the corporation’s name. Proper expense reimbursement documentation should be prepared if a shareholder paid for it. The CRA could deny an invoice billed to the shareholder and paid out of corporate funds.
CRA Audits – Prevention Measures
In summary, small businesses are busy navigating the complex and fast-changing business landscape, and proper documentation for a CRA audit may be lacking. It is always a good practice to have the following:
– A proper accounting system
– Dedicated credit card for the business only
– Ensure all expenses, particularly the big-ticket items, are billed to the corporation
– Logs for meals, driving, travel, phone calls, etc.
– Invoices billed to the actual corporate taxpayer
If these documents are unavailable during a review, the taxpayer may consider involving a professional accountant to assist with the review to ensure the scope does not expand.
If it’s time to consider Corporate Tax Planning, the CPAs at Mew and Company are ready to assist. Contact 604 688 9198 to get started.
About Mew + Company Vancouver Chartered Professional Accountants
Mew + Company Vancouver Chartered Professional Accountants offers ideal solutions to the taxation problem. With a simple philosophy of building long-lasting customer relationships, the company has been serving corporate clients in a variety of fields—including restaurants, real estate, retail, and the service industry. Investing in their specialist services will undoubtedly be fruitful for all kinds of clients.
To learn more about Mew + Company and discuss their services go to their website at https://mewco.ca/
Lilly Woo, CPA, CA, CFE, CFP
Mew + Company Chartered Professional Accountants
604 688 9198
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