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How To Navigate A CRA Audit?

by | Sep 22, 2018 | Personal Tax

The words “CRA Audit” carries a negative connotation for most. Perhaps, you get cold feet when you receive a letter from the Canada Revenue Agency (“CRA”). A letter from CRA could merely be an information request letter. However, this letter is an initiation from CRA to select the taxpayer’s return for an extensive audit.

During the information request, CRA looks for the following indications:

  • Any suspicious activity or transaction in carrying out business or personal affairs
  • Any unusual upward or downward trend of income and expenses
  • Intentional mistakes of inflating expenses and reducing income
  • Making false statements, omission of income and inclusion of non- business expenses.

Once CRA examines the initial information and have enough solid ground to believe that taxpayer should be audited, CRA will issue a correspondence and inform the taxpayer in writing that they are being audited. The follow-up letter will outline the guidelines, the scope of audit and the activities CRA will carry to perform a satisfactory audit to reach its conclusions based on the findings.

This correspondence will further provide an information request and highlight the taxpayer’s rights pertaining to the audit. Taxpayer can review the taxpayer rights bill and exercise their rights if they suspect that CRA is being unfair. Nevertheless, the audit process could be lengthy and costly. In the event that the taxpayer is found to be guilty, CRA will impose penalties and interest over and above the tax liability. It can also result in serving jail time if there is proven intentional negligence and attempt to evade taxes.

Objecting CRA Audit Findings

Taxpayers have the right to appeal against the CRA findings by following the procedures laid out in the tax legislation. A taxpayer can file a notice of an objection and request another auditor to be assigned to review the file again. There is no legal or accounting cost associated with this if the taxpayer decides to file the objection on their own. Most cases do get resolved during this process. However, if the issue is not resolved, the taxpayer can pursue their case in the tax court, and ultimately in the supreme court as a final step.

Both, tax lawyers and tax accountants, can represent the taxpayers during these proceedings. We at Think Accounting encourage clients to stay compliant with CRA and provide proactive guidance through the tax year. However, in the event a CRA request letter does come up, contact us at Think Accounting to help you with the entire process until the end.

We have assisted several clients in the following ways when it comes to a CRA audit:

  • Help clients to understand the Audit requests, simplify the letter and explain the rights and obligations in layman terms.
  • Assist clients in compiling the information and preparing the response letter to CRA.
  • Submit documentations on behalf of our clients.
  • Liaise between CRA and the clients.
  • Accompanying clients during CRA meetings.
  • Assist clients understanding the proposal made by CRA after the audit.

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