While attending a two-part conference this week, in anticipation of the 2015 year end for Payroll purposes, a CRA representative presented the following “Top 10 Audit Adjustments”.  These notes are basically verbatim from the CRA slide presentation, so I am not providing any tax advice here, but am simply providing these details as an “FYI”…  Employer be Payroll Aware!

 

  1.  Unreported payment for services to an independent worker (T4A)  In 2010 Box 048 “Fees for Services”: Reporting payments (excluding HST) for any fees or other amounts paid for services.  So far, CRA is not assessing penalties for failure to report.  CRA has also not yet published a detailed explanation of what types of fees need to be reported.  T4A can be completed for either an individual (using the SIN) or a business (using a CRA Business number).  CRA rep tip:  This may become mandatory in the near future, so be aware.  It is an effort to eliminate the underground economy.  CRA will use this information to track and validate taxable income for self-employed individuals.  Note from Nancy:  This means, Steadfast’s services could become recognized as requiring a T4A in the future.  Other “fees for services” such as:  bailiff, couriers or IT support people could also potentially become part of this legislation.
  2. Automobile standby and operating expense – Problem here is with employees not maintaining a proper log to separate personal and business travel and/or employers not calculating the benefit correctly. CRA Rep tip:  Vehicle Travel Log can be kept in writing and/or on an app that downloads to a smart phone or tablet.
  3. Salary expenses – Bonuses, commissions, cash payments are not being reported as salary.  CRA Rep tip:  Cash payments can include items such as gift cards or certificates that can be used as cash or tickets for admission to an event – Unless they are working to promote the business at the event or are involved in the supervision or management of the event.
  4. Shareholder benefits not reported – Benefits to shareholders are not being properly calculated or reported. This could include interest on shareholder loans.
  5. Security/Stock Options – Officers and/or employees are being compensated in a way to minimize tax consequences and these taxable benefits are not being reported when stock options are exercised.
  6. Reclassification of employment status – Improper assessment of employee vs. self-employed.  CRA Rep tip: Refer to RC4110 Guide to ascertain whether self-employed individuals may actually be considered employees – or vice versa.
  7. Vehicle allowances – Flat-rate allowances need to be recorded as benefits for income tax purposes.  Employees need to maintain travel log.  Employer must complete T2200 for each employee.  CRA Rep tip: Use CRA’s reasonable /km rates in place of flat-rate allowances.  “Reasonable allowance” defined by CRA’s interpretation bulletin as “not too high or too low”.
  8. Parking – Employers not using the fair market value for calculating this benefit.  CRA Rep tip:  If employers provide less parking spaces than the number of employees, no benefit is deemed to exist and therefore it is not a taxable benefit.
  9. Personal and living expenses (employees or shareholders) – Shareholders claiming personal draws may not be properly recording the income as taxable and may be using corporate assets for personal use.  Employees may be compensated for personal living expenses that would be considered taxable income – unless specifically exempted.  Taxable benefits are recorded in Box 14 & 40 and are subject to CPP and income tax.
  10. Director Fees – Fees paid to corporate directors are to be treated as income subject to income tax and CPP.  They must be reported on a T4 slip.  Residents and non-residents are both included for services provided in Canada.