While it may be discomforting to learn that you are being audited by the Canadian Revenue Agency, adopting the right approach will minimize stress and help you coast through the process as efficiently as possible.
Millards Chartered Professional Accountants has many years of combined experience assisting clients through CRA audits. In this three part series of articles, we’ll explain everything you need to know about audits including your responsibilities, what happens during an audit and perhaps most importantly, the rights guaranteed to you by the Government of Canada.
We’ll also be sharing some videos produced by the Canadian Revenue Agency that outline the audit process and answer many of the basic questions surrounding audits in Canada.
In the first article of this three part series, we discussed why audits are required and how tax returns are selected for a review. In this post, we’ll outline the audit process, your responsibilities to the CRA and some tips for navigating your investigation with minimal anxiety.
What are your responsibilities during an audit?
As a business owner you are responsible to meet registration, reporting, filing, and payment obligations under the laws that the CRA administers.
You also need to keep your books and records up to date and in an accessible and readable format either on paper or electronically. You are obligated to provide your books, records and supporting documents to the auditors upon their request.
Brad Sinclair, CPA, CA and Partner at Millards Chartered Professional Accountants in Brantford explains that your attitude and organization will make a big difference when it comes to surviving your audit experience.
“Your willingness to help and the state of your accounting records will play an important part in completing the audit in a timely manner and with the least amount of frustration.”
Keeping your back records organized and accessible is also critical to a positive audit.
“Canadians have to keep their books and records for six years from the day they file a tax return. Within those six years, the CRA can ask to see your books and records to verify your reported income, taxable supplies, expenses or input tax credits. In certain rare cases, the CRA can ask to review books and records outside that six-year period.”
How Does An Audit Begin?
“The auditor will call you or send you a letter. Sometimes they do both. Generally the auditor will provide their contact information and outline the scope of the audit. Often the auditor will explain the date range or reporting periods they will be auditing as well as the documents and information required for the audit.”
Following the introduction, the auditor will schedule a mutually agreeable time to conduct the initial interview at your business location.
What happens during an audit?
At the initial interview, the CRA auditor will identify themselves with their government identification card, explain the audit process, learn more about the business and then ask to see your books and records.
“Before examining your records, your auditor will ask to tour the business so they can get a better understanding of your business.”
The CRA prefers to conduct the audit at your place of business.
“If you don’t have enough space at your place of business, they may take your books and records to review them at another location. If they take your books and records out of the building, they’ll give you a detailed receipt for the borrowed documents. They may have to make copies of your documents during the review.”
A CRA review can take several days or longer but all documents will be returned to you when the audit is complete. Throughout the audit there may be ongoing discussions to clarify information or concerns from either party.
Concerns you may have with the auditor or with the auditor’s supervisor can be raised any time during the audit.
How Does The Audit Conclude?
On conclusion of the audit, the CRA auditor will prepare a schedule of any proposed adjustments to your tax assessment with detailed calculations. the auditor will explain their findings and discuss them with you.
“If you don’t agree with the proposed adjustments to your tax assessment, you will have a reasonable amount of time, usually 30 days, to respond to the auditor. We recommend that clients submit their response in writing.”
Before closing the audit, the auditor will consider the submitted explanations. The results of the audit are explained in a final letter that requests your response to the proposed adjustments. Assuming the audit resulted in a change to your taxes either way, the CRA will mail you a notice of reassessment.
“If we don’t agree with the notice of reassessment received by our client, we can file an objection with the Appeals division of the Canada Revenue Agency within 90 days from the date of the reassessment. That objection would be backed by an explanation of why we disagree and contain the relevant details and documents to support our objection.”
In the last article we’ll look at your rights as outlined in the Taxpayer Bill of Rights.
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