Managing your Personal Finances
Have you heard about IVI Audit? It means you may be subject to an Indirect Verification of Income.
How is it performed? CRA will ask to see your bank statements to verify if the deposits match what you reported on your income tax return.
If the deposits do not match what you filed on your income tax return, the auditor will ask for an explanation. Will you remember two to three years from now where that money came from?
Tip: Do not make something up such as “A relative gave it to me” because CRA will audit your relative as well to verify if that exact amount came out of his/her bank account. Be smart – document it!
Solution:
I suggest that you document deposits that are not income on you bank statement and make sure you attach all source documents on your bank statement as proof.
For instance, you may be a member of a community and bought some supplies for an upcoming event. You were reimbursed – the money you spent – and deposited the cheque on your bank account.
1. Make sure you have a copy of the receipt(s) before you submit them for reimbursement.
2. Make a photocopy of the cheque received or keep a copy of the bank statement showing the e-transfer deposit.
3. Once you deposit the amount on your bank account, document it.
4. I also suggest you keep a copy of a flyer advertising the event.(if applicable)
5. Use a credit or debit card for the purchases. Keep the statements as well.
6. After you file your taxes, have all these evidences attached to the return.
If you are a business owner, make sure you either send an e-transfer or use cheque or credit card. When you deal with cash (by withdrawing from a business account and depositing on a personal bank account), the auditors may disallow it by assuming it is new cash.
It may sound like a lot of work and if you want to have peace of mind, get it done. It won’t take long anyway. A few years from now you will be happy that you followed these 6 steps and avoided unnecessary stress, lost time, professional fees (if you require assistance of a professional), back taxes, fines and penalties.
“Reduce risks, pay on time, be efficient and save money and time” Renata Magalhaes
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