Canada Revenue Agency (CRA) Tax Audit

Canada Revenue Agency (CRA) Tax Audit

Tax Audit– a dreaded word for any taxpayer. There is one thing we do not want to see in our mailbox, it’s a letter from the Canada Revenue Agency. Even worse, if it is a letter from CRA informing us that we are being subject to a tax audit. Should that happen, professional support from Filing Taxes can help you get through a CRA audit.

What happens in a CRA Tax Audit?

A tax audit is a review/examination of your tax return by the CRA to verify that your income and deductions are accurate. During a tax audit, CRA closely investigates the books and records of a taxpayer to ensure whether they are fulfilling their tax obligations, abiding by tax laws appropriately, and receiving the benefits and refunds to which they are entitled.

We are all human, so mistakes can happen. If CRA spots one error, they may assume there must be more, and they will investigate. It is vital to mitigate the risk of suspicion of potential issues by CRA. This can be best done by professionals where Filing Taxes brings a hand of support.

CRA Tax Audit Procedure

When you get audited, you will receive a notice from the CRA stating their intention to audit. The audit will begin with a letter from the CRA, never a phone call, informing you that you are being audited. The letter will put you on notice and specifies the years that the CRA wants to audit as well as the documents and records it wants to see. The documents may include previous tax returns, business records, personal records and even records of family members just to mention a few. It will also notify the date, time, and location where the audit will take place. It could be a desk audit that occurs at the CRA offices, or it could take place at your place of business. You will then have the opportunity to make submissions that the auditor required to review and respond to CRA correctly.

If the auditor suspects any issues in the documents you provided they will inquire about it during the audit. You also have the right to ask questions or raise any concerns you may have. It is essential to use care when discussing your tax situation with the CRA. You will be required to be honest and transparent, but it is also important to understand the potential implications of any information that you provide.

The audit can be concluded with different outcomes. 

  • No adjustments will be made to your assessment. It means CRA stating that no discrepancies have been found.
  • An adjustment could be made that resulted in a reassessment and increased tax liability.
  • An adjustment could be made that resulted in a reassessment and reduced tax liability.

This detail will be mentioned in the final letter issued by the CRA. You have the right to disagree with the result of a tax audit, you can choose to discuss it with the auditor as an attempt to resolve the situation. If this attempt does not work for you, you can appeal for a reassessment. If you decide to formally object to an assessment made by the CRA, or appeal a CRA decision, it is crucial that you hire a professional. Contact Filing taxes for more information to know how we can assist before, during, and after the audit process. We provide accounting and bookkeeping services on your needs.

How to respond If the CRA wants to Audit?

Even if you believe that you have not done anything wrong, CRA auditors are specially trained to find issues with tax returns. The best thing to do is respond and co-operate. Taxpayers are sometimes tempted to represent themselves in a CRA audit this could be a costly mistake. Not responding would be a bad idea, but the worst would be responding incorrectly. 

Let our professional accountants at Filing Taxes help you seamlessly get through the CRA audit. We can assist you at any stage of the audit process. We can develop an audit strategy, help you in the submission of information required by the CRA, accompany you to audit meetings, ensure a fair audit process and secure a favorable outcome. If you decide to object to the audit result or appeal a CRA ruling, we are there to help. Trust us to help you through your audit process. Don’t confront the CRA alone.

What triggers a CRA Tax Audit?

A variety of potential triggers in tax returns tend to raise questions and attract unwanted attention from CRA. Sometimes a taxpayer is randomly selected for an audit. But apart from a random tax audit, there are a variety of triggers because of which you can be targeted for a tax audit. Some of them may include:

  • Higher expenses than others in the industry.
  • Business repeatedly showing a loss.
  • Audit of a related party.
  • Lifestyle incongruence.
  • Large Charitable donations.
  • Tax shelters and gifting programs.
  • History of non-compliance.
  • Unusual changes in deductions or credits. 
  • Excessive business expense claims.
  • Unreported income
  • Cash intensive business.
  • Notable changes in income and tax returns from previous years.
  • Filing an adjustment to reduce your tax liability.
  • Errors and inconsistencies in a tax return.
  • Offshore income.
  • GST/HST non-compliance
  • Offshore assets

Above are just a few situations that might raise a red flag to catch CRA's attention for an audit. To deal with the audit process smoothly keep organized records of your finances using a bookkeeping and accounting system. In certain cases, you might not be able to avoid a tax audit, but you can certainly take the right step of bringing on board Filing Taxes to ensure that the process goes in a breeze. Professionals can communicate with CRA on your behalf, which helps control the flow of information and guards you from revealing more than you legally need to.

How long it takes to do a Tax Audit?

CRA states that the time to complete an audit depends on several factors, such as:

  • the state of records
  • the scope of the audit
  • potential delays due to missing records
  • consultation with other CRA tax specialists

Well-maintained records and professional accountants will help to reduce the time it takes to do an audit. If you don’t have some records you can request to get the copies from the parties who prepared them. If you still can’t manage to get them the situation can be discussed with the auditors to sort out ways to confirm the amounts reported on your return. 

No one wants to be audited by the CRA for any reason. This process is stressful, even if the process ends up in your favor, causes anxiety and worry. When it comes to CRA audits, Filings Taxes helped business owners who have had their taxes prepared incorrectly, who initially tried to ignore CRA confrontation, and people who contacted us with close deadlines.

If you are audited by CRA, our professionals will represent you all the way to tax court if necessary. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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