The tax season officially ends on April 30 for individuals and June 15 for Canadians filing on behalf of their businesses. However, after filing tax returns, some Canadians discover that tax season isn’t quite over – when they get hit with queries from the Canada Revenue Agency (CRA).
Individuals may be contacted by the CRA to begin a review of their tax returns. Businesses may receive notification from the government that they are being audited. This blog will concentrate on income audits for businesses. If you’re seeking information on individual tax audits, keep an eye on our blog for future updates.
So, for those whose business income is being audited, let us all take a deep breath and discuss what an audit entails.
Why are some returns audited but not others?
The CRA conducts audits for a variety of reasons. They may detect an inaccuracy or a pattern of errors in a filing. They may also detect that the income stated is in conflict with business filings. They also examine if they believe a person’s tax obligations are more than what they have been paying.
You can expect to be audited if you frequently record business losses that you use to offset other income.
How does the CRA perform the audit?
The CRA will send an auditor to your home, place of business, or representative’s office to perform the audit, allowing the auditor to ask and answer questions immediately in order to complete the audit as quickly as possible. If necessary, the audit might also be performed at a CRA office. If the office is not in your area, you will be required to send in your supporting documents.
What exactly does the CRA require?
The auditor will examine a person’s documents and records to evaluate whether the original filing was correct or whether it needs to be reassessed. They are seeking the following information:
- Previously filed tax returns
- Credit history
- Property ownership details
- Bank and credit card statements
- Mortgage documents
- Information from the auditee’s spouse, common-law partner, and/or family members that impact their return, information from a trust or corporation
- Any adjustments made by your accountant/bookkeeper that affects your taxes.
What happens if someone does not have all of the required documentation?
Canadians are obligated by law to maintain records for a minimum of six years. If someone learns they are missing a requested document, they can usually obtain it from the issuing organization, such as copies of supplier receipts or bank statements from your financial institution.
What happens if the individual proves that their original return was correct?
If the audit reveals that everything in the initial file was right, the auditor will send a completion letter indicating that the audit has been completed. Hooray!
What happens if the CRA confirms a filing error?
If a mistake was made, the CRA could discover that the person owes more in taxes, or (less likely) that the CRA owes the person a larger refund. The CRA will send a proposal letter outlining the reasons for the reassessment, and the person will have 30 days to accept or reject the proposal.
What happens if someone is reassessed but believes the CRA is incorrect?
If a taxpayer believes their return was incorrectly assessed, they should initiate the appeals process by filing a Notice of Objection. If they are dissatisfied with an auditor’s behavior, they can file a formal complaint on the CRA’s website.
Tax audits may create some anxiety at first, but it’s best to face them head-on and get things squared out as soon as possible to avoid penalties. IDM provides assistance to businesses. Of course, if you need assistance filing your taxes, we’ve got you covered too.
