This is written specifically for small businesses that have annual sales under $5 million. In the past, CRA conducted combined audit that covers both income tax and GST/HST. Combined audits have now been discontinued. Currently, businesses will either be subject to an income tax or GST/HST audit.
My years of experience dealing with small business and CRA audits tells me that the majority of CRA’s assessments are relating to lack of procedures and understanding of the rules as opposed to taxpayers cheating the system in order to avoid tax. Most of these issues can be avoided before the CRA calls you. Most common issues are obvious good business practises that are not followed.
Incorrect business name on the invoices: The person that is entitled to claim an ITC is the HST registrant who purchased the product or services to use in the business, typically they would also pay for the invoice. CRA looks for the person’s name on the invoice, as a result if the person claiming the HST and the name on the invoice are different, CRA will deny the ITC. For example, if you purchase a van for business and claim the HST in your corporation, make sure that the deal sheet from the auto dealer is in your corporation’s name and not on your personal name.
Wrong GST/HST Number: You must be aware that ITCs can be denied when there is an incorrect HST number or no number provided on the invoice. This is your vendor’s responsibility. To make this as a responsibility of the purchaser, CRA has a GST/HST registry available on their website for anyone to confirm the validity of vendor invoices.
Expected items on the invoice: The supplier’s name, description of goods, invoice date, total amount of GST/HST payable, if not indicating that the GST/HST is included in total amount of the invoice and terms of payment.
Related Party Transactions: Effective 2015 form RC4616, Election or Revocation of an Election for Closely Related Corporations and/or Canadian Partnerships to Treat Certain Taxable Supplies as Having Been Made for Nil Consideration for GST/HST Purposes, must be completed and submitted to CRA. When businesses transfer property or share expenses, CRA can assess GST/HST and interest on these related party transactions where an election is not available or is allowed but not on file.
When you claim a refund on your GST/HST, all requests is methodically reviewed to identify errors or non-compliance by desk auditors located across Canada.
GST/HST and Housing Rebates: When purchasing a new home, to avoid paying additional money, many purchasers say it is their primary residence and assign the rebate to the builder. You will get to know that there is an issue only many months after the closing of your new home. With the housing boom, CRA is actively auditing and denying the new housing rebate if any of the following applies:
The entitled purchaser or allowable relative is not using it as a primary residence.
Corporation purchased the house on behalf of an individual
CRA views the transaction as a property purchased with the intention of flipping.
The purchaser acquired the property as a rental property.
New Residential Rental Property Rebates: Similar to the New Housing Rebate. This rebate is available to a person or to a corporation that acquires new house or substantially renovated house for long term rental. Most common errors in this claim are follows:
Property is sold within one year to anyone who will not use the property as a primary residence.
Assigning the rebate to the builder.
Not claiming the rebate within two years.
Identifying the error early may allow for a corrective action. If you have any doubts or wish to review the risk from a compliance standpoint, and to resolve any risk, contact Rajasri CPA who will work with you confidentially. To make an appointment with Raj, please call (416) 425 - 0088
Rajasri Sriskandarajah MBA, CPA, CGA
Rajasri CPA, believe in “Keeping you out of Trouble”. If CRA audit arises, Raj will represent you and assist you through the process. His office provides full cycle accounting services that keeps your accounting and tax planning current. This includes bookkeeping, payroll, corporate and personal taxes, compilation and reporting. Education combined with over 25 years of accounting and management experience dealing with small to midsized business and CRA have made him to understand tax law and CRA’s position.