Most 5 star CPA Google reviews in Canada
Helping Canadian businesses beat the odds!
If an entrepreneur does not file their T4 or T5 slips properly, or if they have not submitted the correct payroll remittances to Canada revenue agency, a virtual accountant says the may trigger a payroll audit. There are several reasons why an entrepreneur should want to avoid a payroll audit, not only is it time-consuming and expensive but also a payroll audit could result in an entrepreneur paying additional taxes and penalties. There is several things that entrepreneurs can do to avoid getting hit with a payroll audit.
One of the first things that an entrepreneur should do, ensures that they know what the filing deadline for their T4 and T5 slips are. These slips are due by the end of February. However, if an entrepreneur does not understand what a T4 or T5 slips is, knowing the deadline will help them. The amounts that need to be recorded on the slips are all of the money that an entrepreneur has taken out of their business for personal benefits. A T4 slip is for when an entrepreneur has taken money out of their business as salary or employment income, and a T5 slip is when an entrepreneur has paid themselves in dividends. It is also important to note that any business owner or staff that has taken a salary should get issued a T4 statement. However, since only business owners and shareholders are able to take dividends, the T fives are only for the owners.
The next thing an entrepreneur should understand about a T4 slip in order to avoid getting it to audit on their payroll is understanding that the T4 amounts need to have the proper payroll remittances submitted to CRA. Since the T4 slips refer to employment income, all employment income needs to have source deductions withheld from the checks including employer and employee CPP, EI and income tax. Not only does an entrepreneur have to withhold the correct amounts, they also have to ensure that they have sent that correct amount to Canada revenue agency as well. If an entrepreneur has not taken enough or has not paid Canada revenue agency enough, that could also trigger an audit.
Business owners should also understand says virtual accountant but the deadlines are for those source deductions to be submitted to CRA. Most small businesses submit this amount on a monthly basis, with the fifteenth day of each month being the deadline for all amounts paid in the previous month. Virtual accountant with recommends that entrepreneurs should not wait until the fifteenth to make those payments, but send that money to the CRA as an entrepreneur submits their payroll. This way, an entrepreneur will not have to remember to submit source deductions, and if something goes wrong, they will not accidentally miss the deadline. However, entrepreneurs do have until January 15 of the following year in order to make up any missed payments from the entire previous year.
By understanding what T4 and T5 slips are when the deadline is, and how to ensure that they are paying the correct source deductions to Canada revenue agency, entrepreneurs can avoid a payroll audit which could see them paying additional taxes, interest and penalties.
If entrepreneurs have discovered that they were not paying the correct source deductions to Canada revenue agency says virtual accountant they may find themselves triggering a payroll audit. However, business owners should know that Canada’s revenue agency may simply send an entrepreneur letter demanding that they pay the amounts that they have shorted in full immediately. However, it could also trigger an audit which means Canada’s revenue agency will check all of the financial statements in the business to ensure that the T4 and T5 slips that were issued are accurate, or if an entrepreneur actually owes more money than they have claimed.
During a payroll audit, the auditor will ask an entrepreneur for their general ledger as well as all of their monthly bank statements for the year. An auditor is going to be looking at the bank statements in order to see what amounts were paid to personal people. The reason they are looking at this is to see if these people should have been considered employees of the corporation and therefore needed to have source deductions withheld from their checks and submitted to CRA. Even if these personal payments were not employees but unincorporated contractors, the auditor may consider them employees anyway. Virtual accountant says this is why entrepreneurs hiring any unincorporated contractors is risky.
The second thing that an auditor will do during a payroll audit is looking at all of the cash and non-cash benefits that an entrepreneur has taken out of the business in order to ensure that they have claimed that money on the T4 or it T5 slip. If they discover any amounts that an entrepreneur has not claimed, they will be hit with having to pay those taxes, pay a late penalty and interest charges.
Virtual accountant says that if an entrepreneur has triggered a payroll audit, and they know that they have amounts that they have taken out of their business that has not been claimed on their T4 or T5 slip, what they should do before the auditor gets there is attribute all of those transactions to their shareholders loan account. What this is going to do is show the auditor that the entrepreneur is being reasonable an understanding what their personal benefits are, and will likely allow the auditor to give the entrepreneur more leeway on grey area transactions then they would if an entrepreneur did not claim those additional benefits on their shareholder’s loan accounts.
The two things that an entrepreneur can do to avoid a payroll audit say virtual accountant is filing on time. Even if an entrepreneur is not able to pay their taxes at the time of filing, they should still file to avoid paying penalties on top of taxes they cannot already afford. And pay all source deductions to CRA on time. By doing these two things, an entrepreneur will prevent a payroll audit which could have them paying more money in the form of taxes, late penalties and interest charges.
