It is a stressful situation, but one that many business owners have faced. You found out you have been selected for a CRA tax audit and suddenly your head is spinning with questions about what to do next. What if they ask me to produce receipts from 5 years ago? How much time should I spend preparing my books? Who should I hire as an accountant or bookkeeper? Should I just pay the penalties and be done with it?
As daunting as this may seem, there are steps you can take to manage this stress so you can focus on running your company instead of worrying about how the government will penalize you. In this post, we’ll go through some ways to keep yourself calm during a CRA tax audit so that it doesn’t become too overwhelming or damaging for your company.
- Hire an accountant
One of the first things you should do is hire a tax professional to help you during your audit and make sure everything is in order. Even if you’ve been doing your books for years, it is recommended that you seek the help of a professional to make sure there are no mistakes made when submitting documents or slips. Canada Revenue Agency (CRA) auditor will likely ask for receipts and slips from previous years that must be submitted along with your current records and financial statements. The best thing to do is get copies of these items organized before your appointment so you do not have to scramble around collecting them while under pressure. If you are hiring an accountant – most of them offer discounts because they understand how stressful this process can be.
- Be prepared for the CRA auditor
The CRA auditor will likely go through your records with you at least once to ensure everything is correct and in line with Canada’s tax code. The first thing they’ll look for is whether your business practices are consistent with previous years’ returns (and if it is a corporation, the Canada Business Corporations Act). Keep in mind that this includes how you conduct transactions, what kind of cash flow you have, who owns the company or holds positions of authority within it, and so on. If there are any changes from the previous year(s), be prepared to explain them to your Canada Revenue Agency auditors so they don’t think these are being used as tricks to avoid paying taxes.
- Keep records organized
One of the CRA auditor’s main concerns is whether your company can provide proof that it has paid its share in income tax over the years. To do this, you’ll need to ensure your books are organized and up-to-date. Another topic they will review is if there are any undeclared cash transactions (such as with goods or services). Keeping receipts filed away for at least 5 years is recommended by the CRA so make sure you keep everything in good order when filing your documents – both physical copies and electronic ones on microfilms or CD/DVDs if required to bring them in with you during an audit. This saves time looking through all of them so they can get to what’s most important – whether or not you are paying your taxes.
- Have a representative present at all times
One of the rules when being audited by the Canada Revenue Agency is that there must be a CRA representative present at all times when going through your records. It does not mean that this person has to be a professional, but it does make sense to have someone around who understands how Canada revenue agency audits work and what items they will be looking for. This will help you in many ways: if you feel rushed or pressured, it is easier if someone else is there with you; you will also avoid the risk of forgetting something during your appointment because you are feeling overwhelmed and stressed out. Canada Revenue Agency auditors can be intimidating because most of them are professional accountants who want to ensure the Canada revenue agency receives the money it owns. Having someone there to help you and speak on your behalf will make things easier and less stressful.
- Ask for a time extension
If, after going through everything with CRA, an extension is required, do not hesitate to ask for one; they may even allow more than one if needed (although you need to prove why this is necessary). This allows you some extra time to get organized and hand over documents as necessary without worrying about being penalized or fined because of missing paperwork due to disorganization or misplacement. If your business has been busy with customers, CRA may cut you some slack.
- Don’t be intimidated by Canada Revenue Agency
Finally, Canada Revenue Agency auditors are human too – do not let their presence intimidate you into admitting things that are not true just because they are frightening or making you feel uncomfortable. CRA is there to discover the truth so being honest with your responses and documentation will help them get to the bottom of it faster – this puts less pressure on everyone involved because they already have enough information to go on without having to hound you about little details. If anything is unclear, ask questions until you understand what’s going on before rushing into an answer that may give them the wrong impression of something else entirely!
7. Speak Up
If you are stressed, do not feel embarrassed to bring this up to your auditor. Although they are not there to help with your feelings, opening up about how you are feeling can be beneficial – it may give them more insight into why certain things are happening or what could be done differently in the future. Speaking up takes courage but it’s worth it if something can improve for the better!
CRA wants your business to succeed and paying them what you owe them is part of that. The auditors are not there to ruin your day, just to investigate how everything works so they can receive the necessary fees or penalties owed.
Handling a tax audit can be stressful. But, with the right preparation and knowledge of what to expect, you will have an easier time navigating your way through it all.
At IDM Professional Corporation CPA, we are here to help you in any capacity that is necessary during this tough process! Reach out today so our team could answer any questions or concerns you may have regarding handling a tax audit successfully
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