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Top Ten Ways to Avoid an Audit

Author: Brad Howland
First Posted: October, 2000

It is an unfortunate fact of life that self-employed taxpayers are more likely to be audited by Revenue Canada. That's because we are easy targets, since so many of us fail to keep proper records! To minimize your chances of going through this nightmare, follow these ten steps.

  1. File your return on time every year.
  2. Double check your math. Don't make mistakes. The best way to accomplish this is to...
  3. Buy a computer program. These days, it doesn't make sense to do it by hand, unless you have the simplest of returns. A good program will notify you of errors, keep you up to date on recent tax changes, and even point out deductions you may be missing. If you don't have a computer, hire a professional.
  4. Declare all your income, especially if you are self-employed.
  5. Don't make up deductions, especially if you are self-employed. Be honest. Revenue Canada has ways of computer cross-checking your claims.
  6. Don't e-file. OK, I have no facts or statistics to back this up, but my impression from talking to people inside the industry is that taxpayers who e-file are more likely to be audited. It seems logical. Have you ever prepared your own return, then taken it to an e-filer? Often they barely glance at the documents before sending the return off. These returns must have a high percentage of errors, and I'm sure Revenue Canada knows this and watches them carefully.
  7. I know this is a hard pill to swallow, but earn less money. The more you make the greater the chance of an audit (you just pay more taxes anyway).
  8. Don't declare business losses year after year. Losses are OK for 2-3 years, but please see Reasonable Expectation of Profit.
  9. Filing a guilty looking return will increase your chance of an audit. For example, if you have a large meal and entertainment deduction, it must be backed up with adequate documentation.
  10. Keep adequate records: here's how.

The information on this website, and the use of this website, are both provided without warranty of any kind. Income tax rules change every year and some information may be out of date. All readers wishing to take advantage of the information offered here should consult a qualified income tax preparer. In no event will Brad Howland, Howland Tax Services, or this website be liable for any damages, including lost profits, arising out of the information offered on this website, or the usage of this website. All material on this website Copyright © 2001-2017 by Howland Tax Services, Inc. Please contact us for permission to use this material in any form. Website designed and maintained by Brad Howland.