Personal Taxes – Do you want to be audited?

by in Tax Advice Information and Updates

I know I complain a lot about the CRA being stupid (get over it. It’s true). That said they are not morons. There are many people out there who just don’t understand their finances and taxes and that is ok, but you MUST have a basic understanding or you will end up in trouble, the type of trouble that involves the CRA performing a colonoscopy on you and your bank account (without an anesthetic or lube).

Personal Taxes 101

If as an individual or proprietor (corporations are different ) you are losing money from operating a real business (not those amway, jewelway, party light candle, hobby businesses that you do in your spare time), then the CRA are going to come audit you. It is just a matter of time.

I get it, nobody wants to pay taxes, but everybody has to pay their share. If you are in business for yourself and you are consistently losing money the question is why not just go and work at Walmart, Mickey D’s or Timmy’s? The only reason to work is to make money.

Let’s be realistic here. Most of us would not go to work if there was not a paycheck. Therefore why would you work for yourself if the expenses you incur are more than the income you make? Right, you won’t. The point of this tirade is to make you realize that if you are really losing money you need to raise your prices, but chances are that you are just NOT doing your bookkeeping and accounting properly.

In Alberta the poverty level is around $25,000. So if your family income is not at least 25K then it’s almost impossible to live. If your tax return says you make less than 25K then chances are you are deducting expenses which are not allowable for tax purposes (personal expenses are not deductible for income tax purposes).

I have said on many occasions that there is no such thing as a red flag to the CRA when it comes to taxes. Well this is one of those times where there is a red flag. If your income is less than zero or so low that it can’t possibly support your basic living necessities (food, lodging, etc.) the CRA will come calling to ask why. Although the proper question floating around the auditors mind will really be “WTF. Do I look like a moron? How do you live where you do with such a low income?”

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Guest Friday, 25 May 2018

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