CRA Audit

Surviving a CRA Audit: What You Should Know

It’s the letter you never want to receive from the Canadian Revenue Agency (CRA). You are subject to a CRA Audit.

The CRA sends thousands of letters every year to notify people that they’re being subjected to an audit. Of all the returns they receive, it’s usually business taxes that they take a fine-tooth comb to. This is unfortunate because business owners and entrepreneurs are often swamped with numbers, and the last thing they have time for is to parse through each one.

If you want the best chance of successfully getting through a CRA audit, we’ll look at how they decide who to investigate, what you can do to prepare, what’s going to happen, and what your accountant should be doing in the meantime.

Risks for a CRA Audit

The biggest risk for being selected for a CRA audit is the size of your business. The majority of the CRA audit program spending is devoted to small and medium-sized businesses. When they run through all of the numbers, here’s what they’re looking for:

  • Discrepancies: Officials are looking for gaps and glaring margins between the reports. For instance, if your reported income is different than the average reported income in prior years, this could be a red flag for the CRA. Or if your income is far higher than the norm in your industry, this may trigger the next step.
  • Deductions: Sometimes just claiming home office deductions, which can include utilities, insurance, and property taxes, can be enough to have the CRA send you a letter. Because many people will claim these expenses when they aren’t explicitly used for the business, many of the write-offs don’t qualify. You may also face an audit if you’re making a lot of charitable donations or medical expenses.
  • Cash: Dealing with a lot of cash in a business opens the path to fraud because it’s notoriously difficult to track. This is doubly true if you’re reporting loss after loss in a cash-heavy business.
  • Family: There are plenty of business owners out there who will take advantage of their familial connections to make it easier to pay their taxes. So while plenty of people will employ family members without breaking the rules, you may be flagged simply for having a child or spouse on the books.

How the CRA Audit Process Works

The first step is a CRA auditor contacting you (usually by mail or by phone). They’ll give you specifics of the auditing process and then conduct an on-site audit at the place of business. The auditor is generally looking at the following paperwork:

  • Tax returns, perhaps and organizational chart or property details, depending on the nature of the audit.
  • Ledgers, invoices, receipts, contracts, bank statements.
  • Records of other individuals or entities not being audited (e.g., partnerships, corporations, spouses, common-law partners, etc.)

The records looked at will include those for your place of business but also your personal records as well. They’ll also look at any adjustments made by your bookkeeper or accountant to ensure that they were all completed according to tax law.

By the end of a CRA audit, the auditor will either declare your filing to be a correct assessment, which means that your case is complete and your audit will be closed. Or they may conclude that you either owe additional taxes or that you’re entitled to a refund.

What You Can Do to Prepare For A CRA Audit

The best way to prepare is by organizing all your records and ensuring that there’s concrete evidence to justify your numbers and answer any questions. This can include anything from invoicing history to physical receipts. The CRA requirement is to keep your records for at least seven years before shredding them, though CRA will generally audit within three years of your return being filed.

You can also consider gathering proof for regional shifts in supply and demand for your industry. For instance, if you’ve taken several losses over the course of your business, you may be able to point to general trends that have pushed down revenue among all of your competitors. However, these records are not to be shown to the auditor unless specifically asked for. Simply having them at the ready can help give you a sense of confidence as you move into the proceedings.

In addition, when you’re getting ready to speak to the auditor, make sure that you’ve given some thought about what you want to address with them. Generally, less is more and answer what is asked of you.  You should be friendly but also thorough when asking about anything from due dates to expectations. It’s common for people to get flustered when they’re talking to an official from the CRA — even when they haven’t done anything to be nervous about. When the auditor is working with you, they should get the sense that you have nothing to hide.

The Role of Your Accountant During A CRA Audit

A CRA audit can be difficult for many reasons, particularly if you’re a busy business owner who doesn’t have a lot of bandwidth to organize, catalog, and verify every last record. When you have a good accountant on your side, they can help you manage the process from beginning to end. Accountants stand between you and the auditor, making it easier to handle the questions and produce the paperwork they need to close the case.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

living will

What is a Representation Agreement (Living Will)?

Our guest author for this post is Flavia Zancope of Zancope Notary Public.

Whether or not it’s nice to admit, aging and accidents are an inevitable part of life. The best one can do is to be prepared, and a little bit of foresight and proactive planning can save one’s family members from having to spend a lot of money to be able to participate on the decision making and to be on the loop of our medical conditions.

Having a Representation Agreement (RA) (sometimes referred to as a Living Will) is one such way to be prepared. When preparing a Will, it is a good idea to prepare your Representation Agreement at the same time.

A Representation Agreement is the name of a document that allows representatives to make health and personal decisions on your behalf, in case you are alive, but cannot speak for yourself. Many people assume that a Power of Attorney (POA) grants those powers. Unfortunately, that is wrong. A POA only grants powers for legal and financial decisions.

With a Representation Agreement, there is no deceased and therefore no estate to divide; it is concerned specifically with medical procedures while the person is still alive.

It provides a way to make provisional medical decisions for oneself in the future. If circumstances leave you unable to communicate your wishes, a Representation Agreement can specify which medical procedures will be authorized or declined on your behalf. The representative appointed will have powers based on what you have given them. These can be full powers or restricted in any way, based on specific wishes.

Though not necessarily required by law, having a notary prepare the Representation Agreement can facilitate the process and ensure that everything conforms to requirements. For important decisions such as this, a notary can help provide peace of mind that everything is in proper order.

We do offer a package deal that saves you money, as we can do both the will and Representation Agreement at the same time. If you already have a Will, not a problem, we can prepare a RA on its own.

This post originally appeared on the Zancope Notary Public website under the title What Is a Representation Agreement, and How Can a British Columbia Notary Help.


About Zancope Notary Public

At Zancope Notary Public, our specialty is Wills and Estate Planning documents (Representation Agreement and Power of Attorney). We are a full-service firm with two notaries full time at the office. We also offer real estate services for clients in Langley and throughout Greater Vancouver and the Fraser Valley. We can help you with buying, selling, and refinancing real estate, and provide family property transfers and independent legal advice.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

A group of people in a meeting

Return to work raises crucial legal questions for organizations

Reviewing and updating workplace policies are a key priority for employers.

As employees return to the workplace, there are many questions around the legal ground rules for employers. Adding to the challenge is the fact that there are few, if any, legal precedents to guide organizations in these unprecedented times. “There’s not a lot of clarity at this point,” says Emily Siu, a lawyer at the SpringLaw employment law firm in Toronto. Here are three key issues keeping employers up at night.

The shift comes with consequences, experts say. According to new research from Robert Half Canada, more than half (56 per cent) of employers say the cost of making a bad recruiting choice is higher than it was pre-pandemic.

Still, given that remote work is likely here to stay for many and that virtual hiring offers access to larger talent pools, we are likely to see more, rather than less, remote recruiting going forward.

Here are four tactics that can help you make the right hire.

Workplace safety

Health Canada’s ongoing guidance on COVID-19 prevention includes a layered approach of common practices – keeping interactions to a minimum, avoiding crowds, masking, hand hygiene and respiratory etiquette – along with vaccination. The common practices can easily be adopted into workplace safety policies, but actually mandating vaccination is something each employer will need to weigh out carefully. The nature of their industry and the working conditions will influence this discussion. Whether to implement a workplace vaccination policy is definitely front and centre of employers’ conversations, says Howard Levitt, of Levitt Sheikh Chaudhri & Swann (LSCS Law). Many of the legal decisions moving forward will depend on whether the courts will consider safety more important than individual privacy, he says.

“Employees that don’t get vaccinated have a mistaken sense that privacy and human rights are valid legal arguments. Although privacy rights apply, they are trivial compared to the overriding safety considerations, so have no legal impact. As a result, vaccination policies are legally permissible, particularly if employees are working closely together or in situations in which working from home is not an option.”

Accommodating exceptions

As with any employment situation, there will be exceptions that need to be addressed. 

“Employers should not discriminate against employees who have legitimate human rights reasons for not getting vaccinated,” says Siu. “These workers should be accommodated up to the point of undue hardship for the employer.”

This specifically pertains to people with medical conditions or religious reasons for not getting vaccinated. “However, they must be substantive reasons, not simply a matter of minor medical issues or a personal opinion, particularly one recently adopted rather than genuine adherence to an organized religion, which bans vaccinations as a significant tenet,” says Levitt. 

If an organization decides to implement a vaccine policy, protocols will need to be established around employees who are not vaccinated, adds James Fu, partner with Borden Ladner Gervais (BLG) in Toronto. “Will there be different rules for distancing and masking? Should employers have badges or stickers to designate who is vaccinated? Each organization will have its own culture and approach.”

Employment terms

The impact of COVID-19 has also opened the doors to potential constructive and wrongful dismissal actions, particularly for remote workers not wishing to return to the workplace. As such, employers need to be mindful of the terms of employment on record. In many cases, these may need to be updated and signed to accommodate the current climate and requirements.

“Employers can provide a time frame for the employee to return to work,” says Levitt. “If they refuse to return, then the employer has the right to terminate their employment.”

Siu confirms she is seeing a strong interest on the part of employers around return-to-work requirements. “It’s really dependent on circumstances, such as the safety of the work conditions, the employer’s capacity for risk and the industry,” she says.

How employers can minimize their risk

There are both legal and practical measures employers can take to mitigate potential risks. For example, they can:

  • Review workplace policies, taking into account all the current factors and circumstances, as well as local law requirements, and then adjust their policies accordingly.
  • Be transparent about opening plans with employees. Providing clear direction reduces the chances of potential legal challenges.
  • Ease the employees return to the workplace and be supportive during the transition. “Returning requires time for adjustment,” says Siu. “Considering the employees’ needs can go a very long way to avoiding resignations or tricky legal proceedings down the road.” 
  • Take all reasonable measures to create a safe work environment. Prepare a safety plan and ensure it is up to date with current health guidelines. Employers are legally required to have a safety plan that can be provided to visiting health and safety inspectors.

Given the lack of legal precedents, employment issues will be determined on a case-by-case basis. In the meantime, Levitt notes, “What employers should be doing is decide what they want to do and build a legal strategy around that.”

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Workplace Accommodations: Choosing To See Ability in Disability

When most people think of a disability, the image of a wheelchair or prosthetic comes to mind. Yet, for those with an invisible disability, the mental image is often less kind and many people tend not to disclose their disability for fear of stigma or discrimination. However, some employers are discovering that the key to successfully integrating workers with invisible disabilities lies in meeting employees where they are – which means being willing to adapt workplaces, workspaces and processes to accommodate workers with differing needs and workstyles.

What Is An Invisible Disability

Generally, a disability or impairment that is not visible to the eye is an “invisible disability.” For example, persons suffering from depression, anxiety, Lyme disease, autism spectrum disorder (ASD) or lupus can experience hindrances, pain, or physical limitations that are not readily perceived by those around them.

A 2011 Canadian survey revealed that 88% of people with invisible disabilities had a negative view of disclosing their disability (Holland, 2017), primarily due to fear of reprisal from their employer.

Why Are Employers More Accepting Of Invisible Disabilities?

While employers can gain from a workforce that includes diverse cultures, backgrounds or gender, there is an increasing willingness to accommodate invisible disabilities in exchange for valuable employee contributions. Some employers have discovered that people with ASD, or “non-neurotypical” people, also bring their own strengths including attention to detail, innovation, value, creativity and loyalty.

In other instances, employees who have been open and transparent about their needed accommodations have found that their employers have willingly provided necessary adjustments – gaining back that employee’s long-term commitment and loyalty.

What Accomodations Are Required By Law?

Legislation and the Ontario Human Rights Commission have long expected employers to accommodate persons with disabilities in the workplace, but the fact that employers are less familiar with invisible disabilities sometimes means they are reluctant to employ persons with such disabilities. 

Employers can successfully engage employees with specific needs by implementing some basic strategies:

  • First, it is imperative that the employer know the individual, their needs and what, if applicable, triggers reactions or discomfort. For example, if sound causes overstimulation for them, the employee may simply need to wear headphones when working around others or in areas with disturbing noises, or have a soundproofing divider installed.
  • Flickering monitors are another trigger for people with vision problems or who suffer from migraines, so adjusting lighting or screen brightness can help that person stay productive.
  • Another strategy is to consider flexible working hours and locations; employees who may be experiencing pain from something like Lyme disease can adjust their work hours or even work from home where they may have devices or access to equipment throughout the day.

What is most critical, however, is that employers take the time to get to know their employees and be willing to meet them where they are, working together with their employees to develop accommodations that will work best for them. This practice engages the employee, giving them a voice in their working conditions that also demonstrates that their employer cares.

Changing Internal Processes

Perhaps the biggest adjustment for employers can be revisiting internal processes such as hiring practices, training and career development. As persons with invisible disabilities may be reluctant to disclose their disability, they may not even be able to get past a company’s interview screening. Expecting standardized practices to work for those who struggle in a standardized world, is simply not going to open the door to workers with needs that don’t fit the “cookie cutter.”

Once they have hired someone who needs accommodations, employers will also want to spend some time providing workplace education and training to help all employees understand various disabilities, so that relationships can flourish and resentment does not develop. Without understanding why a colleague wears headphones, arrives and works late, and has a private cubicle, or why they never make contact or require frequent breaks, other team members may develop jealousy or have less-trusting relationships with that colleague. Hence, having a plan to train all employees can go a long way in fostering a supportive work environment.

Another way to help employees with invisible disabilities integrate well is to discuss their future with the organization, to provide some reassurance that the employer has confidence in their ability and is willing to support their career development. Put in some time up-front to establish, monitor and revisit a growth and career plan to support these employees with future planning, skill development and goal-setting.

As most of us tend to believe what we see, invisible disabilities can be difficult for us to comprehend and accept. Yet, as employers are quickly discovering, within every disability, there often lies great ability. Hiring an employee with an invisible disability may not only result in good productivity and a loyal employee, it can also lead to a more tolerant and sensitive workplace for all, making minor accommodations seem trivial when compared with the greater overall benefits reaped.

REFERENCES

Holland, J. (2017, June 6). The hidden challenges of invisible disabilities. Retrieved from www.bbc.com/capital/story/20170605-the-hidden-challenges-of-invisible-disabilities

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Top 5 Small Business Legal Mistakes To Avoid

Small businesses face many of the same legal issues as their larger counterparts, but often without the cost structure to support engaging legal counsel. If you own a small business, it’s important to understand when saving legal costs up-front can end up costing your business more in the long run.

All businesses – small, medium or large – make legal mistakes. However, a small business may not be as capable of weathering the storm. The effect of a legal mistake on a small business’s bottom line can be so disastrous that it may threaten its very survival. Accordingly, small businesses must pay extra attention to avoid certain legal mistakes up-front.

Below are the top five legal mistakes small businesses make and how to avoid them.

CHOOSE THE RIGHT BUSINESS STRUCTURE

Many small businesses are sole proprietorships, which means there is no legal distinction between the business and the owner. The owner assumes all the liability of the business. Accordingly, the personal assets of the small business owner (e.g., house, car, investments etc.) may be seized to pay the debts of the business.

While there is a level of simplicity to operating a sole proprietorship, there are many advantages to incorporation that are worth considering. One of the main advantages is that the business becomes a separate entity under the law. This means that, if the business incurs a large debt or liability, the business’s assets may be seized to satisfy that debt or liability, but the owner’s personal assets are protected.

Another big advantage is the potential to minimize the owner’s overall tax liability. By incorporating, the owner has three opportunities to reduce their overall owings:

  • Defer paying personal taxes on business earnings by leaving the earnings in the corporation and paying the lower corporate tax rate.
  • Pay itself dividends instead of a salary and pay the lower dividend tax rate.
  • In certain situations, income split by having the business owner’s spouse and children become shareholders of the business and paying them dividends from the business’ earnings.

By minimizing tax liabilities, the owner of a small business may free up more capital to invest in the business’s future.

PUT KEY AGREEMENTS IN WRITING

All of the small business’s key agreements should be in writing. Verbal agreements are very difficult to enforce and often leave the business with no recourse for compensation or legal action.

Every small business should ensure that its key agreements are properly drafted. This means clearly spelling out each party’s roles and responsibilities, providing the business with the protection it needs against future liability and apportioning risk appropriately. This not only helps ensure everyone is on the same page going forward; if something does go wrong, having the agreement in writing will also help prove the other party’s fault.

In addition, given many small businesses may not have sufficient personnel and working capital to engage in traditional litigation, the parties can agree up-front on a different way to resolve any future disputes that may arise. For example, they could stipulate in the agreement that any disputes be submitted to binding arbitration, which results in a more timely and cost-effective dispute resolution mechanism than litigation.

MAKE SURE THERE ARE ADEQUATE EMPLOYMENT AGREEMENTS

Similarly, it is important for every small business to have properly-drafted employment agreements in place. These serve as the foundation of the business’s relationship with its employees. Common terms include whether the arrangement is permanent or temporary, whether the individual is an employee in the traditional sense or an independent contractor, an outline of the duties and responsibilities, and the rights and restrictions upon termination.

Not having a written employment agreement in place may expose the small business to unnecessary liability in future that could have easily been avoided. For example, if the relationship was not properly documented and managed, a small business that intends to hire an independent contractor may find itself liable for large common law termination and severance amounts once the relationship ends.

REGISTER INTELLECTUAL PROPERTY RIGHTS

Intellectual property is the legal right to ideas, inventions and creations in the industrial, scientific, literary and artistic fields. It also covers symbols, names, images, designs and models used in business.[1] In Canada, there are four types of intellectual property rights:

  • copyrights
  • trademarks
  • patents
  • industrial designs

Intellectual property is a valuable business asset and it comes with legal rights. Small businesses may be creating valuable intellectual property assets – sometimes without even realizing it – that should be legally protected. If properly protected, the small business has, among other benefits, the ability to prevent competitors from copying or closely imitating its products and services. Without adequate protection, a small business is vulnerable to being driven out of business by a more savvy competitor.

HIRE A GOOD LAWYER TO HELP AVOID MISTAKES

Every small business faces issues that require the expertise of good legal counsel. Unfortunately, in a misguided effort to minimize costs, many owners of small businesses ignore legal issues altogether or try to handle the issues themselves. This results in legal mistakes that may end up costing the business more in the long run and, in certain circumstances, threatening its very survival. Accordingly, it is important for small businesses to engage good legal counsel in key areas of the business to help avoid mistakes.

Like the other four tips provided here, if you own a small business, think of this not as an unnecessary expense, but as a necessary investment in the future of your business.

[1]      “What is intellectual property?” Innovation, Science and Economic Development Canada. Available at : https://canadabusiness.ca/ government/copyright-and-intellectual-property/what-is-intellectual-property

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.