When you turn on the radio, some guy starts telling you about how he can help you with your income tax audit and re-assessment, but if recent activities are any indication about what Canada Revenue Agency (CRA) is up to, GST and HST audits are their new focus.
Over the last two years we have seen more and more clients being audited for GST and HST. In most cases everything turns out ok, but now the CRA’s potential to get money out of a GST/HST audit are much higher than an income tax audit.
Think about it. Most small businesses can minimize or eliminate income taxes through good tax planning, but most businesses collect and remit GST/HST regardless of their profitability. The amount of GST/HST owing starts with the revenue number, the top line, not the bottom line.
Once a CRA auditor deals with the GST/HST collected on revenue, it’s off to look at the allow-ability of the Input Tax Credits, which are improperly claimed in many cases. Business owners are unaware of the limits on meals, entertainment, and automobile expenses, as well as the reduction on certain input credits, which are dependent on the size of the business. In addition, input credits may have been improperly taken, or not taken at all on imports or purchases from outside your province, or they may not be eligible at all because of a lack of a GST/HST registration number on a suppliers invoice.
Your accountant can help you create the systems and processes to reduce your exposure. But relying on your accountant to be sure that everything is right is usually not a good idea. Unless you have explicitly engaged your accountant to be sure that everything is ok, then his or her job is to generally ensure that your GST/HST accounting is reasonable, not accurate. We know that business owners are very sensitive to accounting fees and this results in the accountant spending their time preparing financial statements based on information provided, making the necessary adjustments and income tax planning, with little or no time left in the budget for GST/HST matters.
As a business owner, you should consider having your accountant do a GST/HST audit similar to what CRA would do to make sure everything is in order. The results may surprise you.
Stan Swartz is one of Sloan Partners founding partners and has over 35 years accounting experience, helping businesses of every size with long term financial planning and everyday money management. Click here to learn more or contact Stan.