February 27, 2017

5 Audit Issues to Stay Clear of in Canadian Payroll

Let me start by saying, a list of 5 items doesn’t nearly cover enough to help employers stay clear of an audit from the Canada Revenue Agency. I wouldn’t be doing my 30+ years of teaching seminars and courses justice if I didn’t warn readers that a blog does not replace professional development courses, certification or otherwise. That being said, lists make very readable blogs (disclaimer: this is my first blog!) so here are 5 audit issues to keep on your radar:

  1. Automobile standby and operating expenses

Employers often have incorrect data for this item due to incorrect reporting of their employees.

  • Personal vehicles – Although it is not a requirement to maintain an employee Logbook (except in the Province of Quebec) it is in the best interest of both the employee and employer to have this available. Keep in mind that employers can challenge the log.
  • Fleet vehicles – A log is always required, in addition to documented company policies on driving the vehicle for personal use, which naturally happens from time toe.

Visit the CRA website to learn exactly what criteria is required in an employee’s logbook and consider recommending that they use an app like Milebug.

  1. Parking

Many employers are simply not aware this is a taxable benefit but it is. And it’s been on the radar of the CRA for some time. Whether or not the employer owns the lot, employers should be reporting the value of the benefit true to fair market value (FMV) less any value that the employee pays. If you subsidize your employees’ parking costs take this quick quiz. Here are 2 tips about parking as a taxable benefit:

  • “Scramble parking” or parking when there are significantly fewer spaces than there are employees, is not a taxable benefit.
  • Parking for a disabled employee is not taxable.
  1. Director Fees

Are your director(s) elected by a popular vote? Appointed? Entitled to a stipend? Director fees are certainly tricky. Many don’t necessarily understand how director fees are paid and when they should be reported as employment income. While director fees are not considered insurable, take a look at the CRA website for excellent explanations of when they are taxable and pensionable.

  1. Salary expense

Bonuses, commissions, or any cash payments made to an employee must go through payroll so it is included in the T4. You can be sure that during an audit the CRA will be looking closely for infractions of this nature!

  1. Shareholder benefits – are often unreported or reported with incorrect calculations

Visit the CRA website to learn exactly how to calculate and report shareholder benefits correctly. If your business is based in Quebec, things differ slightly, refer to the Revenu Quebec website.

For many of these items, consider connecting with accounts payable and your human capital management provider to ensure both are on the same page about reporting.

A special thank you to the Canadian Payroll Association members for electing me as their 2016-2017 chair, and featuring me in the summer edition of CPA’s DIALOGUE.

I’ll leave you with a short but important word-to-the-wise:

Don’t wait until year-end to start preparing for it.

Ceridian offers training workshops in report-writing, legislative knowledge and year-end to equip you to handle both year-end and any potential audits.

Team Ceridian

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