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The complete guide to CRA audits that you were afraid to ask

CRA audits

People who pay their taxes may be afraid when they receive an audit notice from the CRA. But understanding what an audit is, why you might be chosen, and how to get through it will make you feel a whole lot better and ensure that you adhere to Canadian tax laws. Any person interested in knowing as much as possible about CRA audits should go through this article.

What is a CRA audit?

The CRA will review your tax returns and any other documents that you have provided in order to verify that your income, deductions and credits have been accurately disclosed. Its purpose is to check that you paid the correct amount of tax and did not declare less income, or too many credits and benefits.

Why are you audited?

The CRA uses the following methods to select people and companies to be audited. Some of these are:

  • Random selection: Some citizens are chosen at random to ensure everyone complies with the laws set by the government.
  • Comparative analysis: Your tax return is then matched by CRA against returns of individuals similar to you. An audit can be called for where there are significant deviations from the norm.
  • Red flags: Certain activities or statements, such as big business expenses in relation to income, continuous losses, or big donations to charity, result in an audit.
  • Third-party information: If there are discrepancies between your tax return and information from other sources, such as your employer or a bank, they might conduct an audit.
  • Previous audits: This means that if you have ever been audited before and some irregularities were noted, then you are most probably going to be audited again.

The audit process

1. Notification

If you have been selected for an audit, CRA will write to you to inform you of their decision. This letter will indicate what the audit is going to look at, which years are going to be examined, and what documents will be necessary. Err on the side of caution and give them what they want as soon as you can.

2. Preparation

It is very important to prepare well for an audit to be conducted in a proper manner. Pay your bills, receipts, bank statements, among other papers into different folders. It is important to keep records that are well documented and reflect your income and expenditure.

3. Meeting with the auditor

The CRA auditor can arrange for a face to face meeting with you at your home, your place of business or at CRA’s premises. In this meeting, the inspector will look through papers and talk with you to confirm there are no errors.

Audit outcomes

  • No change: The information on your tax return is accurate; therefore, there is no need to adjust it.
  • Adjustment: If mistakes are detected by the inspector, then the tax liability of your company will be re-assessed. This could mean that you have to pay more taxes, fines, and interest on your debts.
  • Refund: Sometimes, the audit results may reveal that you overpaid your taxes, in this case, you get a refund.

Rights and responsibilities

During an audit, as a citizen, you have certain rights and duties:

Rights

  • Fair treatment: It is your right as a person to be treated with dignity, respect, and courtesy.
  • Privacy: This is because the law shields your private information.
  • Representation: You have the right to have a tax professional assist you.
  • Information:  You have a right to ask CRA why they need some information from you and how they are going to use it.
  • Resolution of disputes: If you disagree with what the audit has revealed, you have the right to appeal the decision.

Responsibilities

  • Accuracy: Give full and correct facts.
  • Timeliness: Answer CRA requests quickly.
  • Record-keeping: Make sure you keep good records to back up your tax return.
  • Being honest: During the audit, be honest and helpful.

After the audit

You will get a letter of reassessment if there are changes to your tax return after the audit is over. You can make an objection within 90 days of getting the notice if you don’t agree with the outcome. In this process, you have to send in supporting documents and a thorough explanation of why you think the reassessment is wrong.

You can take your case to the Tax Court of Canada if the first review doesn’t go your way. It can be helpful to get help from a tax professional during this process. They can give you information and represent you.

Preventing future audits

There is no surefire way to dodge an audit, but these best practices will make it less likely that one will happen:

  • Accurate reporting: Always give correct information about your income and expenses.
  • Detailed records: To help with your tax return, keep records that are complete and well-organized.
  • Help from a professional: If your tax situation is complicated, you might want to hire a CRA Audit Support Calgary that can provide specific advice and guidance tailored to Canadian tax laws and regulations.
  • Timely filing: If you want to avoid extra scrutiny, make sure you file your tax returns on time.

In conclusion

Having your finances checked by the CRA can be scary, but knowing how it works and what your rights and duties are can help you get through it. You can make sure your audit goes more smoothly by keeping good records, properly reporting your income and expenses, and responding quickly to CRA requests. If you ever have to go through an audit, know that the best ways to do well are to be prepared and work with the auditor.

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