Each year the CRA specifies the top 10 payroll non-compliance errors that their auditors consistently come across out in the field. Payroll can be very complex and requires proper documentation and recording, review the list below to see if your organization is at risk.
Top 10 areas of concern:
Taxable automobile benefits – It is important to maintain proper logbooks to separate the personal and business use of a vehicle so the benefit can be calculated properly.
Reclassifying of employment status – Individuals may be compensated as self-employed contractors when they should be considered an employee, as established by the employee and employer relationship. The reverse can also occur, an employee should be considered a contractor.
Personal and living expenses – Some employees may have personal living expenses paid for by the employer as part of their compensation agreement. Unless these fall under specific exemptions. This would be considered taxable employment income.
Unreported employment income – Unreported salary and wages, commissions, bonuses, and cash payments to employees that should be included on a T4. There can also be unreported payments for self-employed contractors on their T4A.
Contract for services reported on a T4A – If you use the services of an independent contractor, you must issue a T4A if the annual payments equal more than $500.
Housing benefits/board and lodging – Except for some special or remote worksites, most employees that receive free or subsidized housing from their employer would be considered to have received a taxable benefit. This benefit is calculated based on fair market value.
Travel allowances and expenses – To be considered non-taxable, they must be reasonable and clearly validated as a business expense.
Vehicle Allowances – Non-accountable vehicle allowances to employees that are not reported as a taxable benefit. This can often include cash allowances, gas cards, or mileage reimbursements above the prescribed non-taxable amounts.
Parking – Employees that are provided free parking or subsidized parking are considered to have received a taxable benefit. The benefit is calculated based on fair market value.
Security and stock options – If provided to employees, they enjoy a financial benefit and a sense of ownership, but the taxable benefit must be reported when stock options are exercised.
As you can see this list is quite extensive, and the same culprits make it on the list year over year. It is important when setting up a new employee to ensure accurate calculations and inputs to prevent possible risks and large year end adjustments should a CRA audit take place.
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