The Canada Revenue Agency (CRA) is entrusted with the administration of tax legislation and numerous benefit programs on behalf of the Government of Canada and several provinces and territories.
Audits are vital to upholding the fairness of the tax system. Throughout an audit, the CRA examines taxpayers’ financial records to confirm adherence to tax laws, correct receipt of entitlements, and accurate reporting.
The majority of taxpayers in Canada adhere to these tax laws. The CRA’s audit procedures educate taxpayers on their obligations and uphold public trust in the tax system’s integrity.
The CRA offers resources to assist you if they’ve selected you for an audit. This post aims to give you a bird’s-eye view of the country’s audit process and the kind of CRA help you can ask for.
How does the CRA determine who to audit?
The CRA selects files for an audit through a risk assessment process. This assessment considers various factors, including the probability of errors in tax returns and indications of non-compliance with tax obligations.
Additionally, the CRA examines the taxpayer’s information on file, compares it to similar cases, and may incorporate data from previous audits or investigations.
What happens during the audit?
The initial step in the audit process involves a CRA auditor contacting you via mail, phone, or both to initiate the audit and provide details regarding the audit’s date, time, and location.
An on-site audit typically occurs at your home, business location, or representative’s office. Upon arrival, the auditor will present a valid identification card and commence the audit.
Conducting the audit on-site facilitates prompt addressing of inquiries and helps reduce potential delays in the audit’s completion.
You will be invited to the CRA office if the CRA doesn’t conduct an on-site audit. To optimize resources, the CRA centralizes the management of certain audit files in specific office locations.
Consequently, you might be assigned an auditor from outside your region. In such instances, the auditor will request that you provide or send any necessary supporting documents for the audit.
Regardless of the audit location, the auditor may need to duplicate your electronic records or borrow certain documents. You’ll receive a complete list of borrowed documents. CRA will return these documents promptly.
What does an auditor check during an audit?
What an auditor examines during an audit encompasses various types of records, including:
- Information accessible to the CRA (like property details, credit history, and filed tax returns)
- Business records (like bank statements, rental records, contracts, receipts, invoices, journals, and ledgers)
- Personal records (like credit card and bank statements, mortgages)
- Personal or business records of other individuals or entities not under audit (like a trustee, beneficiary, settlor, partnerships, corporations, family partners, common-law partners, and spouse)
- Adjustments your accountant or bookkeeper made for tax purposes
During the audit process, your auditor will discuss identified issues. You’re also encouraged to bring up any concerns you may have with the auditor at any point.
What happens at the end of the audit?
After the audit, the CRA will send you a letter detailing one of the following outcomes:
- There will be no changes to your previous assessment
- An adjustment resulting in additional tax owing (reassessment) requires payment of the balance
- An adjustment resulting in a reduced tax due (reassessment) entitles you to a refund
If an adjustment increases the tax owed, the auditor can give you an estimated amount before the CRA issues an assessment or reassessment notice.
This process allows you to settle part or all of the owed fees promptly, potentially avoiding interest charges, instead of waiting for the formal notice. You can appeal a reassessment if you disagree.
Here are a few remedies you can take advantage of.
- Submit an objection: Challenge an assessment or determination or contest a Canada Pension Plan (CPP)/ Employment Insurance (EI) decision.
- Taxpayer relief options: Seek relief from penalties or interest or request a refund or reduction beyond three years; submit late, amended, or revoked elections.
- Appeal to the Court: Challenge the CRA’s decision on your objection or CPP/EI appeal in court.
- Remission: Explore the possibility of a remission review for relief from taxes, penalties, interest, or other debts in exceptional circumstances after exhausting all other options.
Seek Help and Stay Informed
Stay informed about tax updates and changes by regularly checking official sources. If you encounter challenges navigating the tax system, feel free to seek assistance from the CRA.
Keeping yourself updated and seeking CRA support ensures smooth sailing through the complexities of taxation.
