What to Do If You’ve Been Audited By CRABrian Jang ON September 14, 2018
It’s a scene that has played out in movies and TV many times: someone receives a letter that they are about to be audited, and that is followed by pandemonium.
The thought of being audited strikes fear into the hearts of many as they envision the weeks and months of scrutiny that will follow. In extreme cases, it may even take years to complete. The entire process can be very difficult, both emotionally and financially as the government pores over what seems like every aspect of one’s business and personal tax filings.
An audit will require you to provide extensive and extremely detailed information about all of your revenue and expenses. For example, if you have claimed travel mileage as a business-related expense, you will need to provide information confirming the validity of such. Likewise, virtually any other expense could come under scrutiny. This won’t really be an issue if you have the ability to provide the information requested, but if you have failed to document your claims, or if there are errors in your tax filings, you may be required to pay back taxes, including interest. There may also be other penalties imposed against you.
Be advised that while you are required to provide the CRA with any information that they request, you are not obliged to offer anything further, and indeed, you should have a trained tax professional handle communication on your behalf.
So, who is most likely to be audited? Those working in industries that often involve cash payments (such as hospitality) are more likely to be targeted, as are those whose filings show inconsistencies, or a radical change in profits, losses, or expenses. Similarly, those who maintain a lifestyle beyond the reach of their declared income may be singled out.
If you happen to be flagged for an audit, you need not panic. You should simply engage a professional to act on your behalf and provide them with all of the relevant information that they will need in order to answer questions that the CRA might have for you.
Ideally, all of your records should be kept in good order, but if you have been lax in maintaining them, you should now be arranging them to facilitate smoother proceedings. It’s also worth noting that you may be selected for a review as opposed to a full audit. This is a simpler process that typically sees the CRA demanding receipts to support expense claims and tax credits. As with an actual audit, however, you are advised to consult with a tax professional before providing information, and do not offer more than what is requested.
Upon completion of a review, you will be issued a letter that either declares the matter closed, or a notice of reassessment to inform you of any extra taxes (plus interest) that you now owe. Following a full audit, you will receive a letter describing any necessary changes, to which you must respond within 30 days. At this point, you are able to provide any documentation or explanations to oppose these changes.
Going forward, now that you have been audited, you may be flagged for another review in the future. Provided your filings have been accurate and you are making legitimate claims, future audits should not be a major issue.
In all cases, as we have already stressed, you should be sure to work only with qualified tax professionals. Accountants who encourage you to make questionable claims, or who seem willing to bend the rules should be avoided. In the end, their suggestions are likely to harm you, as the CRA has algorithms that point out any irregularities, and they will eventually reveal suspicious claims.
Audits may not be quite as terrifying as presented in entertainment, but they do need to be taken seriously. With professional help, dealing with your audit can be a relatively straightforward task, and one that need not cause you any distress.
Facing an audit? Contact BCJ Group today.