The Canada Revenue Agency (CRA) audit process can be daunting, but with the right knowledge and preparation, you can manage it smoothly and minimize stress and time.
CRA’s Audit Process
An audit begins when the CRA contacts you by letter or phone to schedule the audit’s date, time, and location. Audits can take place on-site at your residence, your company, your representative’s office, or at a CRA office. We recommend arranging it at our office. During on-site audits, the auditor will present valid proof of identity and may borrow certain documents, providing a thorough receipt for any borrowed materials. Auditors cannot receive records by email for security reasons. Instead, you can send documents online using the CRA’s secure services. Your auditor will provide instructions on how to do this, although we often do this on your behalf so it’s easier.
Preparing for a CRA Audit
Preparation is key to managing a CRA audit effectively. Here are steps you can take to ensure you’re ready:
- Keep Accurate and Organized Records: Keep all relevant financial documents well-organized. This includes receipts, invoices, bank statements, and previous tax returns. Digital records should be easily accessible. Dext is a wonderful tool for this.
- Understand Your Tax Filings: Check your tax returns for the years being audited. Look for discrepancies or errors and be ready to explain them.
- Seek Professional Help: If you’re unsure about any part of your tax return, consult a professional, like KWB Accountants & Advisors. We can provide guidance and represent you during the audit if necessary.
- Review CRA Communication: If you receive a notice of audit, read it carefully. Understand the scope of the audit and what documents the CRA is requesting. Only provide the information and documents being asked for. Providing more than requested will usually make the audit take longer and be more involved.
Why Might You Be Audited?
The CRA may select you for an audit for several reasons:
- Random Selection: Some audits are purely random, with the CRA choosing taxpayers through a computerized system.
- Inconsistencies: If your tax returns show inconsistencies or significant changes compared to previous years, it could trigger an audit.
- Industry Norms: Deviations from industry norms in income or expenses may raise red flags.
- Third-Party Tips: Information received from third parties can also lead to an audit.
- Specific Projects: The CRA occasionally runs targeted projects focusing on particular industries or types of deductions.
What Happens at the End of the Audit?
After reviewing your records, the auditor may:
- Confirm your assessment is correct, closing the audit
- Propose a reassessment, indicating more tax owed or a refund due. You’ll have 30 days to respond to the proposal.
What If You Don’t Agree with a Reassessment?
You have the right to appeal a reassessment. If you disagree with the audit results, you may file a Notice of Objection. A Notice of Objection may only be filed after you have received the Notice of Reassessment for the tax return in dispute.
The deadline for filing a Notice of Objection is 90 days from the date of your Notice of Reassessment. If you have passed the deadline, you can still ask for an extension. For additional information on the following stages, click here.
Your Rights and Responsibilities in an Audit
Your Rights:
The Taxpayer Bill of Rights outlines your rights in dealing with the CRA, ensuring accuracy, professionalism, courtesy, and fairness. It also involves a commitment to small businesses. You can file a complaint if you are dissatisfied with the CRA’s service.
Your Responsibilities:
The law requires you to retain adequate records to assess your tax obligations and benefits for at least six years from the most recent date of assessment or reassessment. Make sure your accounting records are available in an electronically readable format. During an audit, submit all necessary records and prompt responses to the auditor’s queries.
Understanding these aspects of the audit process can help you navigate it more effectively. For more detailed information, click here.
Accounting and Advisory Support for You
KWB Accountants & Advisors can help you navigate a Canada Revenue Agency audit and ensure your compliance with relevant tax rules that apply to your business. We offer tailored advice to optimize your profit and tax savings.
Book an introductory meeting with us today to discuss how we can support your financial success.
