1. Discrepancies between your revenues and HST
When CRA receives your income tax filing (corporate or self-employed) they will compare this with your HST return Line 101 from the same period.
If a variance is noted in the amounts, this might flag your income tax filings or the HST filings for having sales under-reported.
They’ll also take a closer look at your HST by comparing what you owe (13 per cent of your reported sales) and how much was actually collected.
Self-employed individuals do not have taxes withheld at the source so that ups the likelihood that what you owe may be incorrectly reported.
If you run your own business there is little you can do to prevent being targeted by the CRA for audit. Your best option is keep all of your supporting documentation like receipts and invoices and maintain your bookkeeping and work with a tax professional to ensure you claim everything appropriately.
3. Running a cash business
Are you running a hair salon, contracting business or a restaurant (or anything else that deals often in cash), your business likely has a substantial portion of cash flowing through it.
When your business involves a lot of cash transactions, it’s harder to trace those funds. CRA is keenly aware of this and will assume (from vast experience) that are more opportunities to recover taxes from undeclared cash income in these types of business.
Be aware that the CRA will compare your business with others in your industry. If there is a substantial variance in the relationship of revenues to costs in your industry, you’re way more likely to be flagged.
And always avoid working for cash under the table. If you ever get audited, you’ll face major penalties and some hefty interest charges on unreported income – so do it right and get advice from a professional.