It is very likely that most Canadians have already filed their tax returns for 2016. Within the next few weeks, a Notice of Assessment will be received by most of the filers meaning that they have no problems with their tax returns until next year’s filing season. Meanwhile, several returns were selected by CRA to audit based on several factors.
The CRA makes a risk assessment based on several factors that include frequency of errors in the tax returns and whether there are existing indications of non-compliance. The information on the file of CRA will be compared with similar files that contain information on previous audits or investigations that were undertaken.
If your tax returns were unfortunately selected by CRA for audit, you will receive notice through email or by phone or both so that you can start with the process of collecting documents that will confirm that the income, deductions and credits claimed in the tax returns are accurate. Usually, on-site audits are held at the residence, place of business or the accountant’s office.
The auditor will ask for personal records as well as those of family members. You will be required to present your business records like ledgers, journals, receipts, invoices, contracts and bank statements. Once the records have been properly examined, the auditor will conclude that the previously issued assessment was correct, in which case, you will receive notice that the case is closed.
On the other hand, there is also a possibility that the auditor will require a re-assessment. The best option is to be cooperative with the CRA and provide the additional documents to support your position because it is very likely that the courts will force you to submit your records. Failure to submit requested records on a specific date will result into a compliance order from the court.
With CRA audit protection, there is a proactive and cost effective solution for clients whose tax returns may be subjected to audit. Disputes are avoided between the client and accountant regarding the fees that may be incurred as a result of the tax review, audit or investigation of the submitted returns.