Maintaining good records and filing taxes timely is important. Everyone gets it. You hire a good tax preparer to do your taxes, and you are done with your responsibilities, right? Well, not quite so. While hiring a professional is great, your responsibilities before the CRA are more complicated than meets the eye. There are tax filing myths that revolve around this topic. Whether you’re an existing company or someone looking to start a business, it’s important to understand these myths before closing your tax year.
First, let’s see how a your tax preparation process might look like:
You provide documents (e.g. invoices, receipts, statements) to a bookkeeper. The latter will process them and pass the records on to a tax preparer who will file your tax returns.
Myth 1. A good bookkeeper will ensure my records are right
A bookkeeper who knows what they are doing is great to have. But how do you know that your books are being done correctly? I am not trying to diminish all the hard work and efforts of bookkeepers. Most of them are doing their best really striving to bring value to small businesses. However, there are limitations to how well they will do your books. It’s not just about human error due to workload and tight deadlines. Not all of them are familiar with peculiarities of your industry. Even if they are, they may not know every detail that is going on in your business. Your client just got into financial difficulties, a supplier started working on your big order but will not bill until sometime later, you forgot to tell the bookkeeper about a new bank account or credit card, and the list goes on. It is those details that, if missed, will make your bookkeeping inaccurate, which will affect your tax returns.
Myth 2. Hiring a good tax preparer to file my taxes is all it takes to satisfy the CRA
Tax preparer will use the bookkeeping records to do your tax returns – be it an income tax or an HST/GST return. They are not obligated to check correctness of the records (!) Of course, a professional is supposed to make a reasonable effort to look and, hopefully, detect inconsistencies in the records that are obvious. However, they can look only so far – especially, during busy tax season. As a result, any unnoticed errors will inevitably spill into your tax returns. In the eyes of CRA, you are the one who is responsible for the inaccuracies. Afterall, these are your records.
Myth 3. Notice-of-Assessment means my filed tax return is good
After receiving your tax return, CRA sends you a Notice of Assessment (NOA). Many people mistake it for CRA’s acknowledgement of correctness of your tax filing. It is not. The NOA is merely a “Thank you for submitting” card. CRA can still review the tax return and knock on your door with questions sometime in the future if there are any inconsistencies in your filings.
So, what do you do?
You need to perform at least high-level checks to evaluate the bookkeeping records done for your company. There are very simple, yet efficient, steps you can take to discover potential mistakes in your records. And you don’t need bookkeeping or accounting knowledge to understand and use them! I will share those steps with you in subsequent posts.