How To Survive A CRA Tax Audit: Expert Advice
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29 Oct 2023
You might have been running a successful SME business in Canada. Even if all your tax filings are in order, there are chances that your firm will get listed for a tax audit by CRA. Even though businesses are picked for tax audits for a reason, it doesn’t necessarily mean that you have done something fishy.
Audits are an important part of the Canada Revenue Agency’s range of activities to ensure that everyone complies with Canadian tax laws. It is to ensure that the tax system is fair for everyone.
If you have kept your books in the perfect order, don’t worry. To stay anxiety-free during the CRA audit process, we have tried to answer every question regarding this process. What’s more, you get some tips that help you stay confident throughout the audit process.
Tip: A CPA in Surrey Canada can help you with financial statement preparation so that you can smoothly sail through the CRA audits.
The term ‘audit’ refers to a check, review, verification or inspection of a record, transaction, account etc. Thus, in Canada, a tax audit is the process of verifying and examining the tax returns of a business to confirm the accuracy of their reported information as per the Income Tax law.
No matter how diligently you work to keep your accounts in order, the thought of an auditor closely examining your money might be unsettling. Only provide the CRA auditor with the information they specifically request, and follow these tips to make a tax audit go more smoothly:
What Is A Tax Audit?
The term ‘audit’ refers to a check, review, verification or inspection of a record, transaction, account etc. Thus, in Canada, a tax audit is the process of verifying and examining the tax returns of a business to confirm the accuracy of their reported information as per the Income Tax law.
What Triggers A CRA Audit?
In Canada, the Canada Revenue Agency (CRA) is responsible for conducting business tax audits. Even though the selection of a firm for audit is random, there might be some other reasons too. For example:- Unusual deductions or income sources
- Uncommon related-party transactions
- Prior record of audit
How Do You Survive A CRA Audit?
No matter how diligently you work to keep your accounts in order, the thought of an auditor closely examining your money might be unsettling. Only provide the CRA auditor with the information they specifically request, and follow these tips to make a tax audit go more smoothly:
- Recognize the CRA's request and comply: The CRA will inform you of an impending audit via mail or phone. Desk audits and on-site audits are the two types of audits, where you have to submit your documents within a fixed time frame (often 30 days).
- Create a list and double-check it: You must identify the following before the audit starts:
- The tax years being examined
- The business being audited (if you have more than one)
- The precise records the auditor needs to check.
- Collect and submit your data: Find out how your auditor wants to receive the requested documents. They refrain from using email transfers and ask you to submit the documents on the "My Business Account" site of the Canada Revenue Agency. Emails aren’t a secure method of transferring sensitive information.
- Request an extension: If the particular time is a busy season in your industry, you can request an extension. Provide a reasonable request with the necessary documents for acceptance. The process usually takes 3-4 days for auditing two tax years. However, your overall audit may last anywhere from one day to a few weeks.
- Stay professional to finish the process on time: Be cordial and respectful while interacting with auditors:
- Set up a vacant desk in a peaceful area.
- Encourage employees not to confide in an auditor.
- Keep your presence known so you may be reached if necessary.
- Only you, your bookkeeper, and your public accountant should be questioned.
What To Do When CRA Audits You?
- Make sure you understand: It is OK to request the auditor to submit a list of questions that must be answered and to go through the list with you at the end of the day. If you don't understand the question, don't respond.
- Go over the result: Ask the auditor if your tax return will change when the audit is complete. If no adjustments are required, the problem should be considered settled.
- Defend the modifications if necessary: The auditor will normally send a letter with the suggested revisions when the audit is complete. 30 days will pass before you must reply.
- Agreeable: A fresh notice of reassessment will be sent to you after the recommended modification has been decided. This will require evaluating the dispute with a separate member of the tax department.
- Announcing abuse: The majority of auditors are reasonable, but you and your accountant may wish to ask for a different auditor if the current one is abusive or placing unreasonable expectations on you and your team.
