Read The Top 10 Audit Adjustments the CRA Makes
Each year, the CRA provides a list of commonly requested adjustments to an employer’s payroll as a result of wages and benefits not being correctly reported by the
Forewarned is forearmed. Don’t make these mistakes!
Here is the top ten list for the most recent reporting year:
- Unreported payments for services to an independent worker (T4A) – Employers are not reporting payments for services to sub-contractors on the prescribed T4A form.
- Automobile standby and operating expenses – Employees are not maintaining proper logbooks to separate personal and business driving so employers are not calculating the benefit correctly. Incorrect perception that if a vehicle doesn’t meet the definition of an “automobile” there is no benefit to be reported.
- Salary expenses – Includes unreported salary and wages such as bonuses, commissions, cash payments, etc.
- Shareholder benefits not reported – Interest on shareholder loans and other benefits is being calculated incorrectly or not being reported.
- Security/Stock options – Security/Stock options have become a common method of compensating officers and employees in a way that minimizes the tax consequences to the officer or employee. Taxable benefits are not being reported when stocks options are exercised.
- Reclassification of employment status – Individuals operating as self-employed contractors when they should be treated as employees or vice versa.
- Vehicle allowances – Employers are giving flat-rate vehicle allowances to their employees and not reporting the benefits as income.
- Parking – Employers are not reporting the value of this benefit and when they do, they report a minimum amount and not the true fair market value (FMV).
- Personal and living expenses (employees or share holders) – Many corporate owners look at this type of expense as personal drawings and are therefore not reporting it as taxable income. These include appropriations of corporate assets for personal use. Some employees, as part of their compensation agreement, may have personal living expenses paid for by the employer. Unless these fall under a specific exemption, this would be considered taxable income.
- Director fees – Fees paid to corporate directors are not correctly treated as employment income subject to CPP and income tax and reported on a T4 slip. This applies to both resident and non-resident directors for services rendered within Canada.
This list can also be found in Dialogue magazine, a publication for members of the Canadian Payroll Association. Find out more about membership at their website, www.payroll.ca.
This article is from our Payroll Quarterly newsletter. You can view back issues and subscribe online here.