Audit Ready Bookkeeping is a requirement if you intend to sell a business

If you are buying or selling a business, you need to consider audit ready accounting. There are a ton of tax problems requiring solutions that most small businesses are yet to become aware of.

To be a business in Canada today means that you better understand that not doing proper bookkeeping is not an option. You will learn to keep an audit ready set of books or you will pay a greater price for not doing it than what you thought you were saving by going on the cheap and lazy plan.

If you are a sloppy bookkeeper, sooner or later, you will find yourself with a tax audit problem and you will be in the audit emergency room. You will be deal with a CRA Panic Attack.  (CRAPA).

Times have changed and bookkeeping programs like QuickBooks and Simply Accounting can leave you vulnerable to an expensive version of an audit, instead of a slam dunk, non event. These types of accounting packages are not audit ready. That means that they are just not good enough for the current tactics of CRA.

The old generally accepted ways of doing things is no longer adequate. You need to understand that there are so many new laws that no reasonable business person could ever hope to be aware of them all. Ignorance of the law is no excuse for breaking it. What that means is that you have to get in the habit of practicing due diligence in everything you do in business.

You also need to understand that conventional accounting may not be the best way to do things.

If you hope to sell your business, having an audit ready set of books will increase the value of your business in direct relationship to the worst case tax liability risk.

Consider how important filing on time is in relationship to “Stature Barred” dates.

Statute barred, in Canada means that Canada Revenue Agency (”CRA”) cannot audit those years unless they find gross misrepresentation or fraud.  If they are unable to find this, then they cannot audit those years after they become statute barred.

Tax returns become statue barred three years from the date on the notice of assessment. Therefore a business owner is vulnerable for that time frame. This logically is a serious factor when someone buys an existing business.

If the business owner filed the returns late and CRA audits the years that were under the ownership of the old owner, this makes the new owner vulnerable to penalties and interest.  CRA will assess late filing penalties and also could assess you with penalties for wilful deceit and gross misrepresentation

GST is considered a Crown Debt and CRA shows no mercy when it comes to collections of GST. If there was money was not paid for GST owing or payroll taxes prior to your ownership, it is possible that CRA will seize your bank account to cover past debts that were generated prior to your ownership of the business.

CRA is at an unprecedented level of mean aggression, so small business needs to beware of this fact. A new business owner is a prime target for the past practices of the old business owner.

Because when a business is sold the prior years can be challenged, it means that the new buyer may want to think about whether he wants to buy the assets instead of the shares of the business.

In the buy sell agreement, it may say that the old owner is responsible for taxes but what about the penalties and interest and if they decide to challenge the assessment who covers this expense? For example if a business is assessed deemed income that was not reported, you can challenge the CRA position however if it is a GST debt then you must pay the tax first then make your objection later.  Don’t count on the previous owner easily agreeing to cough up doe…. They may be unwilling or unable to pay, a factor that leaves the new owner on the hook for the bill.

If the company for sale has a poor set of books or unfiled tax returns, a wise buyer will take tax liability into serious consideration. They should look at a hold back on final payment pending tax returns being statute barred.

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