Whether you’re managing it in-house or working with a PEO company, the importance of managing payroll correctly isn’t lost on you.
Yet many companies still struggle. This is especially apparent when tax time comes along and the CRA selects you for a payroll audit. Keep these five issues in mind during the entire payroll process to help prevent an audit.
1. Salary Expenses
Salary expenses are among the most common infractions the CRA looks for when it conducts an audit. You might think this is the easiest factor to get right, yet many businesses get nailed on it.
Why? It seems simple enough: You pay your employees, you note it down on their T4s, and you call it a day. But some businesses forget about bonuses, commissions, and cash payments made to employees, so they don’t go through payroll properly. Other businesses purposely leave these items off the payroll, in effect paying employees “under the table.”
The CRA is very concerned with the underground labour market in Canada, so you can bet it’ll be watching for irregularities relating to payments.
2. Shareholder Benefits
Shareholder benefits are often incorrectly reported or calculated. Part of the problem is the misunderstanding between accounts payable and human capital managers. They might be on different pages about how shareholder benefits should be handled!
The best thing you can do to avoid audit issues related to the calculation of shareholder benefits is to check out the CRA’s website. The agency provides exact guidelines about when to report shareholder benefits and how to calculate them.
Of course, if you don’t follow the CRA’s guidelines, they’re going to find out when they audit you. It’s better to play it safe.
3. Director Fees
Another sticking point is director fees. There’s often confusion about when and how to calculate director fees. Most of the time, these fees aren’t insurable, but in some circumstances, they are taxable and pensionable.
Much of it depends on how directors are selected in your company and the benefits bestowed on them. Some directors are elected while others are appointed. Some are entitled to a stipend. Different situations mean different rules when it comes to paying and reporting these fees.
Again, the CRA’s website lays down the law, so use its guidance to avoid audit issues later on.
Did you know parking is a taxable benefit? Many employers don’t! While there are exceptions, you should treat parking you offer to your employees as a taxable benefit. Doing so will help you avoid audit issues if the CRA decides to investigate your books.
Parking isn’t always a taxable benefit. For example, providing parking for a disabled employee is non-taxable. The same is true of parking situations where there are fewer spaces than employees. In most other situations, however, the CRA considers the provision of parking as a taxable benefit, whether or not you own the lot.
You should report the fair market value of this benefit, less any cost your employee bears. If you pay for your employees’ parking, talk to your payroll provider about how to report this benefit.
5. Automobile Operating Expenses
Do your employees often drive for work? If they do, you’ll need to keep accurate logs about who is driving, when, where, and how far. If you have fleet vehicles—company-provided cars, trucks, or vans—you must keep logs.
Employees who use personal vehicles for company purposes should also keep a log. You’re not necessarily required to, but it’s a good idea for both you and the employee. Employees often report inaccurately, which leads to you having incorrect data for your books. Use an app to cut down on incorrect reporting.
If you keep an eye on these five audit issues, audit time will be much less stressful!