For anyone starting a business, detailed record keeping is one
of the most important ways to avoid tax complications. Here are 3
tips to help you get started:
1. Look in the rearview
If you don't already track your finances, you will need to
recreate your tax records. The process begins by searching back
through bank statements and other financial records, which can be
painstaking and time consuming. To complicate matters further, if
you're an owner-manager and haven't kept receipts for your
expenses or driving logs, you will find yourself at the mercy of
the Canada Revenue Agency.
In cases like this, a seasoned financial advisor can help make
estimates for clients, but that comes with a big warning: if the
CRA does decide to take a closer look and finds discrepancies,
there's little you can do to prove otherwise. That's why it
pays to keep receipts and to document your transactions
2. Know the rules
For simpler businesses, saving receipts and preparing an annual
summary of revenues and expenses is usually sufficient record
keeping, but if you have a high volume of transactions or more
complex financial dealings, you will need some kind of accounting
system and possibly the assistance of a bookkeeper.
It is common for new entrepreneurs to have a hard time
understanding increasingly complicated compliance rules. In
addition, government bodies don't provide a lot of practical
information, leaving the onus on business owners to understand
rules and remitting requirements related to HST, payroll
deductions, corporate taxes and a myriad of other regulations that
If you don't take the initiative to understand these issues
and are late on your government filings, this is usually seen as an
invitation for an audit. Other "red flags" that can lead
to queries from the CRA are big variations in income or expenses
from one year to the next.
The CRA may also intervene if you are regular remitters of HST,
and then suddenly apply for an HST refund. This may be completely
innocent, but it can trigger questions from the CRA—and
sometimes even an audit.
3. Plan ahead
As an entrepreneur, the best way to avoid tax confusion is to be
proactive. You should meet with an accountant when launching your
business, and on an annual basis thereafter. We believe that
proactive planning is the best way to stay in front of tax matters.
There is often little that can be done to change the past but you
can always plan for the future.
What's happening in your business in the next year?
What's happening in your personal life in the next year? How
can we plan to minimize your tax burden accordingly?
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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