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Afraid of the Big Bad WolfBy Debbie Patterson, owner of Odessey Business Services So you handed off your box of receipts to your tax preparer, signed at the ‘sign here’, stamped the envelope and celebrated that tax season is over for another year. But whether you work part-time, full time, or are self employed, filed your own taxes or paid someone to prepare it for you, midnight, April 30th shouldn’t be the end of tax season. Did you get the refund you were expecting? Was the balance due showing the same as the return you filed or did Revenue Canada reassess it and would you even have noticed it if they did? Millions of returns get filed in 3-4 months and the people who work for the government dutifully key all of that information into the computer, return after return. If you’ve kept track of your bank statements you’ll know how often keying errors can occur. Revenue Canada is no exception. Just because an assessment comes in with a final total doesn’t mean it’s right. Many times they catch errors such as income from a missed T-4 or an adding mistake on our part... did they carry forward that unused tuition amount? Many people don’t even look at their assessment or question it if they do. Fear of Revenue Canada results in many people overpaying on their taxes, paying extra in penalties and interest, or just complaining about a smaller refund than they were expecting. A quick look at the assessment and questioning any discrepancies ensure that our totals agree with Revenue Canada. Revenue Canada wants everyone to file returns based on their guidelines… and guidelines are just that… guidelines. These can’t take in every circumstance of every tax payer, so it’s in our best interest to know what we can use and which deductions we used can flag an audit or reassessment. Most audits are spot audits, just a check up, and as long as we can justify what we did there is no reason to live in fear of the big ‘A’ word. There are some deductions that are checked more commonly than others. Deductions taken without receipts being filed are checked up on regularly, such as daycare and moving expenses. Often, copies of the receipts claimed are all that are needed to end a review and release any refunds due. It’s for this reason that the self employed seem to be reviewed more than regular taxpayers. But when all is taken into consideration, a self employed return is filed almost exclusively with no receipts submitted. Some of the bigger deductions are based on percentages determined by the taxpayer. We need to have backup to justify these deductions just as someone claiming moving expenses must. Business use of home expenses is a great deduction to use but it is also one that is monitored closely for abuse. We decide on the percentage of the home used and this percentage determines the amount of rent, mortgage interest, condo fees, utilities, insurance and repairs we can use against our income. Some of these expenses only have a bank statement as a paper trail but we shouldn’t be afraid to use these expenses as they are valid operating costs of a home business. Vehicle expenses are another great deduction for home-based businesses but are also watched closely for abuse. The only real backup we can provide is a vehicle log, which keeps track of business kilometres driven versus personal. If these amounts are questioned and no physical log is available for backup, the entire deduction may be denied and this could result in a large reassessment. Even daily mileage written in a day-timer can be enough to ensure this doesn’t happen. Also, a total of the kilometres driven during the year is needed, as this is what the personal vs. business percentage is based on. One reading a year, on New Years Day and regular logging will let you use this great expense against your income and you can feel confident that if questioned you can justify the expense. The prospect of getting audited can prevent us from fully using all of the deductions we can to keep our taxes as low as they can be, so knowing exactly what we can use is very important. It is just as important that you know what your tax preparer is filing as that signature on page 4 tells Revenue Canada you agree with what was filed and you are now 100% responsible for everything in that return. An audit is just a means to make sure the deductions we deserve are used properly so they are available for the coming tax years. Debbie Patterson is the owner operator of Odessey Business Services, specializing in income tax. Visit her at www.odesseybusiness.com for more tax tips or contact her directly at 403.816.5098 |