Tax Audit Questions
Facing a CRA tax audit? Understanding the key terms, processes and having the right representation can help you get through it. With ex-CRAs professionals, Farber Tax Solutions can handle the CRA on your behalf.
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What can I expect in a CRA audit?
An audit by the Canada Revenue Agency is an examination of your books and records to confirm whether you paid the amount of tax that you owe. In this video, we will answer three common questions about audits:
First, who can get audited by the Canada Revenue Agency?
Technically, the Canada Revenue Agency can audit everyone. In practice, however, taxpayers are chosen based on a risk assessment. This means that you are more likely to be audited if there are indications of errors in your tax returns or non-compliance with tax obligations. For example, if you consistently report significant changes in your income, report large business losses or have not filed tax returns for several years, you may be more likely to get audited.
Second, how does the Canada Revenue Agency conduct an audit?
The audit process starts with a letter or a phone call advising you of the date, time and location of the audit and the years under examination. The audit is typically conducted at your home or at your place of business. However, some aspects of it may also be conducted at your representative’s office or at a Canada Revenue Agency office.
The auditor has the right to review your records, borrow them and make copies. Records that are subject to examination by the auditor include the following:
- information already available to the CRA such as filed tax returns;
- business records such as ledgers, invoices, contracts;
- personal records such as bank statements;
- personal or business records of other individuals; and
- adjustments made by your bookkeeper or accountant for tax purposes.
If the auditor examines your records and finds that your previous assessment was correct, the process ends there. Alternatively, if the auditor finds that you owe more tax or are entitled to a refund, you will receive a reassessment.
Lastly, what should you do if you are being audited?
Taxpayers should cooperate with the Canada Revenue Agency by supplying all the necessary information without volunteering information that is not required. If you have the documentation to support the amount that you have claimed, your accountant should be able to help you. However, if there are any inconsistencies in your returns, if you are missing supporting documentation or have other complications, you should hire a tax professional with experience in handling audits to help you navigate the audit process.
Additional Frequently Asked Questions:
What common mistakes do taxpayers make during a CRA tax audit?
An audit by the Canada Revenue Agency (CRA) is a review of a taxpayer’s books and records to ensure that tax returns accurately reflect the taxes owed and all filing and payment obligations are being met. The following is a list of common mistakes made by taxpayers when dealing with a CRA audit.
- Ignoring the CRA: taxpayers sometimes believe that ignoring the CRA will make an audit disappear. This is an ill-advised tactic that only serves to harm the taxpayer. Ignoring the CRA does not make them go away. Instead, by ignoring their problems, taxpayers end up missing important deadlines, and forcing the CRA to audit based on assumptions. These assumptions often lead to grossly inaccurate reassessments that are never in the taxpayer’s favor.
- Providing unnecessary information: taxpayers often provide too much or unnecessary information during a CRA audit in an attempt to be cooperative and forthcoming. Unfortunately, they end up making admissions or disclosures that can complicate matters unnecessarily. It is important to be aware that CRA auditors are hunting for inconsistencies. Providing unnecessary information creates additional opportunities for the CRA to find errors and discrepancies. Taxpayers should strongly consider professional representation before corresponding with the CRA.
- Giving up: a CRA audit is a stressful and time consuming process that can quickly become overwhelming. In order to end their frustration, taxpayers concede to the CRA and accept their reassessments at face value, even when they know the CRA is wrong. Giving up out of frustration should never be an option. Our tax system has an independent objections and appeals process that taxpayers should take advantage of with a professional representative. Having an independent review of the audit can often lead to reductions in the amount of taxes owed. In addition, the CRA frequently makes errors in audits that taxpayers never even realize. By giving up, taxpayers accept the CRA’s work – errors included. Hiring a professional to review the CRA’s work is a smart move that can save taxpayers thousands of dollars.
Taxpayers should seek professional representation immediately upon receiving any correspondence from the CRA. The professionals at Farber Tax Solutions can help provide guidance throughout the audit process and yield significant tax savings. Our team includes former CRA agents, accountants, financial and legal professionals, who work with you at every stage of the audit to resolve your tax problem quickly and efficiently.
Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:
- 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;
- 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and
- 3| Offer a complete solution to your tax problems, including ex-CRA professionals and tax lawyers from Farber Tax Law.