hi guys,
I just started doing business tax, and the trend I am looking at is that way too many clients are very comfortable claiming a tons of expenses as meals and entertainment expenses even though I am 90% sure that those are their personal expense. some claim up to 6-7k before got 50% deducted in tax. Has anyone here have had to deal with audit of this expense before from the CRA, if it happened how much should I charge the client more for the work?
I would suggest going reasonable per business volume and consistent with prior years.
I checked on the their previous tax return, and saw huge amount of expense as well. But CRA seems to dont care at all about that.
Can’t say what their current practice is, but having at one point been at Auditor for CRA and also see the other side as an Appeals Officer, the general practice is that it’s not about the amount of the claim…it’s the ability of the claimant to justify said claims: names, dates, purpose of expense, business case…and receipts of course. Unreasonable amount? Unreasonable total? Disallow and let 'em appeal or go to Tax Court.
Questionable business case? It doesn’t take long in a discussion with someone to determine if they’re full of … 
.
Salespeople were always the worst as “everyone has the potential to be a client”. No, they don’t.
Oh…and just because someone claims it and it’s accepted on Initial Assessing, it doesn’t mean CRA won’t come back for that info in the next three (at least) years. More years, of course, if they’re GST registered.
Dont they have some sort of a mechanical set up that will be triggered if such claim is for example more than the previous years or abnormal compared to the industry? I always wonder how do they check the T2s. Is it done by an automatic system or the agents really have to go through each and every return!?
How did you get into those position? What was your pay look like if you dont mind?
Yes, that is quite likely…but that is a “selection for review” issue…not a “is it or is it not allowable as an expense” one. CRA undoubtedly uses computer-based statistical analysis in selection of audit files (personal, corporate or anything else). And yes, most of the time they don’t choose “every” file, except in projects (eg “All moving expense claims > $2K”).
Can’t tell you anything about current CRA pay rates or hiring practices as mine was decades ago.
Advise your clients to note the names, dates, purpose of expense, business case…and receipts of course.
Many audits are triggered 2-3 years after the return is filed. In all likelihood, without recording that info within a day or two, it will not be in long term memory when the auditor asks for the same years later.
One contractor includes 30-40 receipts for coffee bought locally - small town just over 3,000 residents. They are only for him. I have told him they are personal and not deductible, but he keeps bring then anyway. An occasional local meal is also excluded on the return. The few meal receipts for meal in our closest major city I will deduct as he picks up item our local hardware store doesn’t carry.
^^^
This. Useful, as well is a date book / diary / outlook or other electronic calendar with meetings noted. Equally acceptable if done on a daily basis.