Don't Get Caught Up On One Of These Top Ten Audit Adjustments

Each year, the Canada Revenue Agency (CRA) provides a list of commonly required adjustments to an employer's payroll as a result of wages and benefits not being correctly reported. Here is their latest top ten list:
  1. Unreported payments for independent contractors - Failure to report fees for services paid to independent contractors on the prescribed T4A slip.
  2. Security/Stock options - Security/Stock options have become a common method of compensating officers and employees, providing them with a financial benefit as well as a sense of ownership with the employer. Taxable benefits are not being reported when stock options are exercised.
  3. Automobile standby and operating expense - Employees are not maintaining proper logbooks to separate personal and business driving, so employers are not calculating the benefit correctly. There is an incorrect perception that if a vehicle doesn't meet the definition of an "automobile", there is no benefit to be reported.
  4. Housing, low/free rent, board & lodging - With the exception of special or remote worksites, most employees that receive free or subsidized housing from their employer would be deemed to receive a taxable benefit based on fair market value (FMV). In some instances, the value of the benefit may be reduced.
  5. Unreported payments - Includes unreported salary and wages such as bonuses, commissions and cash payments to employees that must be included on a T4 slip.
  6. Travel expenses and allowances - In order to be treated as non-taxable, travel expenses and allowances must be reasonable and clearly validated as business expenses that primarily benefit the organization.
  7. Reclassification of employment status - Individuals operating as selfemployed contractors when they should be treated as employees or vice versa.
  8. Personal and living expenses (employees or shareholders) - Many corporate owners look at this type of expense as personal drawings and are therefore not reporting it as taxable income. These include appropriations of corporate assets for personal use. Some employees, as part of their compensation agreement, may have personal living expenses paid for by the employer but unless these fall under a specific exemption, this would be considered taxable income.
  9. Vehicle allowances - Employers are providing non-accountable vehicle allowances to their employees and not reporting the benefits as income. This can include cash allowances, gas cards, or reimbursements.
  10. Parking - Employers are not reporting the value of this benefit and when they do, they report a minimum amount and not the true FMV.

This article is an excerpt from Dialogue Magazine, which is received by members of the Canadian Payroll Association.

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2019 Automobile Deduction Limit Changes

The Department of Finance announced the income tax deduction limits and expense benefit rates that will apply in 2019 when using an automobile for business purposes.

As an example, rates for tax exempt allowances and operating expenses increased by 3 cents per kilometre for 2019. 

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