Canada Revenue Agency’s Top 10 Most Common Audit Adjustments

The deadline to produce and distribute year-end tax slips is fast approaching. This year, employers have until February 27, 2015 to produce and distribute 2014 T4 and RL1s to their employees.  There are multiple data elements that go into producing a T4 or RL1 for an employee – many of which are often overlooked!

The Canadian Payroll Association recently published the Canada Revenue Agency’s Top 10 most common audit adjustments asked of employers.  This list serves as an important reminder for you to verify against as a part of your year-end project.  Not all of these may be applicable; however, if any are, you should pay particular attention to ensuring the item is reported properly.

If you have any questions or require assistance with your year-end project, please reach out to a PIVOTAL sales representative to learn how we can help you:

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Do you have a question about Canada Revenue Agency’s Top 10 Most Common Audit Adjustments — or other Payroll Management issues?

Top 10 Reasons for Adjustments for the 2013 reporting year:

1. Unreported payments for services to an independent worker (T4A) – Employers are not reporting payments for services to sub-contractors on the prescribed T4A form.
2. Automobile standby and operating expense– Employees are not maintaining proper logbooks to separate personal and business driving so employers are not calculating the benefit correctly. There is an incorrect perception that if a vehicle doesn’t meet the definition of an “automobile” there is no benefit to be reported.
3. Personal and living expenses (employees or shareholders) – 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.
4. Salary expenses – Includes unreported salary and wages such as bonuses, commissions, cash payments, etc.
5. Vehicle allowances – Employers are giving flat-rate vehicle allowances to their employees and not reporting the benefits as income.
6. Shareholder benefits not reported – Interest on shareholder loans and other benefits is being calculated incorrectly or is not being reported.
7. Reclassification of employment status – Individuals operating as self-employed contractors when they should be treated as employees or vice versa.
8. 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
9. Housing benefits – When an employee is provided free or subsidized housing there is generally a taxable benefit to the employee at the fair market value.
10. 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.