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When entrepreneurs are new in business, they are often very short on cash says, virtual accountant. In fact, 29% of all businesses fail because they ran out of money in their business. What can help an entrepreneur stay cash flow positive, is ensuring that they are meeting all of their filing requirements, and paying taxes on time so that they can not only avoid interest and late fees, but also so they do not trigger an audit in their business that could potentially cost them even more money.
The virtual accountant says many entrepreneurs understand how important it is to file their year-end taxes on time, which is also important for entrepreneurs to file their T4 and T5 slips on time as well. The amounts that are recorded on the slips are all of the money that is coming out of the business to pay staff and business owners. A T4 is how an entrepreneur records all of the various employment income that comes out of their business through salary or wages for entrepreneurs and employees. Not only do entrepreneurs need to ensure that there ensuring that all employees that have been paid for the corporation is accounted on the slips, but that these amounts also require source deductions being withheld from their paychecks so that business owners can submit those amounts to Canada revenue agency.
A T5 slip, on the other hand, is how an entrepreneur records the dividends that they have taken out of their business. Since dividends are how the prophets of the corporation get dispersed, this is only payable to business owners and shareholders of the corporation. However, dividends are not considered an expense of the business and do not show up on the income statement. Also, an entrepreneur does not need to withhold any source deductions from this amount, because they are not considered employment income.
Since personal taxes are due in April, the virtual accountant says that T4 and T5 slips needs to be filed at the latest by the last day of February. This is going to allow the Canada revenue agency as well as all staff to prepare their income tax filing. If an entrepreneur fails to file these slips on time, they potentially are triggering a payroll audit. This could result in additional fees and penalties, that an entrepreneur may not be able to pay for, but should be financially devastating to their business.
In addition to ensuring there T4 and T5 slips are filed on time, a virtual accountant says it is important for entrepreneurs to ensure that they have submitted payroll remittances to CRA on time as well. Even though an entrepreneur owes source deductions on a monthly basis, a business owner will have until January 15 to catch up on any amounts missed from the entire previous year. If they have missed a payment, or if they have paid to little, that is the time to catch it up.
If an entrepreneur can ensure that there filing their T4 and T5 slips on time and that they are current with all source deductions, they can ensure that they will avoid triggering a payroll audit for their business.
Even though entrepreneurs often know what they have to do to avoid being audited says virtual accountant, sometimes they are faced with an audit despite their best efforts. If entrepreneurs are facing a payroll audits, there are certain things that they should expect, and things that they can do to ensure the process goes smoothly.
One of the first things that entrepreneurs should keep in mind if they have been targeted for payroll audit by Canada revenue agency, is that they should go through their personal transactions in their business before the auditor does. This way, if an entrepreneur has not claimed personal expenses on their T4 or their T5 slips, they can go through it ahead of time and claimant to their shareholder loan before the auditor sees. This way, when the auditor goes through their statements, they can see that the entrepreneur has been proactive and reasonable on showing what items they should have claimed in the first place. This allows the auditor to give the entrepreneur the benefit of the doubt, and be less likely to claim grey area transactions as personal.
Virtual accountant says that an auditor is going to ask them for their monthly bank statements for the last year as well as the general ledger. What they are looking for is any transactions that went out to individuals rather than businesses. But they are looking for is if any employees have been paid directly, instead of having the appropriate source deductions taken off of their income, and submitted to Canada revenue agency. This means that if an entrepreneur has hired an unincorporated business, it could put them at risk. For example, if an entrepreneur was paying an unincorporated business for courier services, for example, the payment would go to that business owner’s personal name, and an auditor may consider them as staff. Then, they would owe source deductions as well as interest and late penalties.
The second thing that an auditor is looking for according to a virtual accountant is if an entrepreneur has claimed all personal amounts on their T4 or it T5 slips. Any additional transactions that were not claimed, will then be assessed with additional taxes and interest.
If an entrepreneur faces and audit, they may find themselves having to pay additional taxes on business transactions that looked like personal transactions, or business transactions that have been assessed as being staff. The virtual accountant says that in order to avoid this, they can ensure that they are filing their T4 and T5 slips by the last day of February every year, and that they are current with all payroll remittances. By doing that, entrepreneurs can ensure that there avoiding a payroll audit and avoid having to pay additional amounts in taxes in their business which could be financially burdensome to their business.
