How Or Payroll Audits Triggered | Virtual Accountant
Avoiding an audit is beneficial for all entrepreneurs says, virtual accountant. Audits not only take significant amount of time, money, it could end up costing an entrepreneur more in taxes and interest. Since half of all entrepreneurs end up failing in business, and 29% of those failed businesses say that they ran out of money, by avoiding triggering audits in their business can go a long way in helping an entrepreneur stay in business.
However, entrepreneurs may not know how to avoid triggering a payroll audit in their business. If they do not know when to file their T4 or T5 slips, they may inadvertently trigger a payroll audits in their business which will cause all grey area transactions to be heavily scrutinized by an auditor, potentially costing an entrepreneur additional taxes and interest charges.
In order to understand what they need to do to avoid a payroll audit, entrepreneurs need to remember that there T4 and T5 slips need to be filed on the last day of February at the latest. T4 and T5 slips are where an entrepreneur is going to record all of the money that has come out of the business for their own personal benefit. since an entrepreneur can only take money out of their corporation two ways, salary and dividends, the T4 slip is used for the entrepreneur to account for their salary, where the T5 is used for the entrepreneur to record their dividends.
Since dividends are only payable to business owners and shareholders because these are the disbursements of the prophets of the business, entrepreneurs and shareholders of the only ones that will end up with the T5 slips. These are not an expense of the business, and not considered employment income. They will have no additional tax applied to their amounts at this time.
The virtual accountant says, on the other hand, the salary of an entrepreneur is considered employment income. Since employment income can be attributed to business owners but also their employees, anyone who receives employment income in the business will get a T4 slip. Also, entrepreneurs need to keep in mind that all employment income gets source deductions withheld from it. If an entrepreneur fails to withhold the correct amount of source deductions and send that off to Canada revenue agency, that could trigger an audit. Therefore, an entrepreneur needs to be extremely diligent in ensuring that the correct source deductions are calculated. There is the employee portion of CPP, but also the employer portion of CPP. Also, income tax and EI must all be withheld from all employment income including the entrepreneur.
The virtual accountant says that in order for an entrepreneur to avoid triggering a payroll audit, they have to ensure that there filing their T4 and T5 slips by the end of February, and ensuring that they are not shorting Canada revenue agency with source deductions. Since Canada revenue agency will not warn an entrepreneur that they are underpaying on a monthly basis, a business owner should ensure that they are making the correct calculation so that they can avoid being hit with a payroll option if they have made the incorrect calculations.
Virtual Accountant | How Or Payroll Audits Triggered
With entrepreneurs ensuring that they are withholding source deductions from their staff, virtual accountant says that is not the only way an entrepreneur can avoid triggering a payroll option in their business. In fact, there are several things that entrepreneurs need to understand in order to ensure that they are minimizing the opportunities for Canada revenue agency to slapped them with payroll audits.
Entrepreneurs should first understand that they do not have to just take source deductions withheld from their staffís wages, but if an entrepreneur is also taking employment income in the form of salary or wages, the entrepreneur also needs to ensure that the correct source deductions are being withheld from their own checks. The virtual accountant says many entrepreneurs believe that as business owners they do not have to pay source deductions and this is simply untrue.
The next thing that entrepreneurs need to keep in mind, is that there is actually a monthly deadline that they need to have their payroll remittances submitted to Canada revenue agency. The deadline every month is the fifteenth day. All payroll from the previous month is owed all of the payroll remittances on the fifteenth the following month. For example, all payroll amounts that are run in January will have their payroll remittances do on 15 February.
Although the fifteenth is the deadline, a virtual accountant says business owners should avoid paying on the fifteenth by any means necessary. The best practice ensure that not only do entrepreneurs do not forget to make the payment, but that can help safeguard in case something goes wrong, they will not end up with a late payment, is to send payment to Canada revenue agency at the same time that they run payroll. Since the amount does not technically do until they run payroll, by paying both at the same time, virtually guarantees an entrepreneur will never be late but their payment. It is also far easier for an entrepreneur to do because they will also have just calculated their source deductions, therefore ensure they are making no mistakes on the remittance that they are sending to CRA.
It is important for entrepreneurs to keep in mind that if they are underpaying Canada revenue agency on a monthly basis, they will not get warned of this. The only way they will hear from CRA throughout the year is if they miss the fifteenth-day deadline. Therefore, an entrepreneur should be very diligent to ensure that they are not underpaying CRA, so that they do not end up hit with a payroll audit at the end of the year.
When entrepreneurs can ensure that they are paying their source deductions on time, and in the correct amount, virtual accountant says this can significantly impact an entrepreneur’s chances of not getting hit with a payroll audit. By doing this, and ensuring that there filing their T4 and T5 slips on time, can help an entrepreneur avoid payroll audits altogether and avoid being assessed additional taxes.