As tax season draws to a close on April 30th for individuals, and June 15th for Canadians filing on behalf of their business audits, many expect to breathe a sigh of relief. However, for some Canadians, the conclusion of tax season does not mark the end of their obligations. Instead, they find themselves confronted with inquiries from the Canada Revenue Agency (CRA) that demand their attention.
Demystifying Business Income Audits: Understanding the CRA’s Review Process
When it comes to tax season, individuals may find themselves receiving a notice from the Canada Revenue Agency (CRA) or Revenu Quebec, signaling the beginning of a tax return review. On the other hand, businesses might receive news that they are being audited by the government. This blog post will focus specifically on business income audits. However, if you’re seeking information on individual tax reviews, you can find it here.
So, if you find yourself facing a business income audit, take a moment to breathe and let’s delve into what this audit entails.
Why are some tax returns audited while others are not? The CRA conducts audits for various reasons. They may identify errors or a pattern of errors in a filing. They may also detect inconsistencies between reported income and business filings. Additionally, they scrutinize cases where they suspect that a person’s tax obligations are higher than what has been paid.
If you consistently report business losses to offset other income, it is highly likely that you will be subject to an audit.
Decoding the CRA’s Audit Process: What to Expect
When it comes to conducting an audit, the Canada Revenue Agency (CRA) takes a proactive approach. They typically dispatch an auditor to your home, business premises, or representative’s office. This allows the auditor to promptly address any queries and expedite the audit process. In certain cases, the audit may take place at a CRA office, especially if it is not feasible for you to attend in person. In such instances, you will be requested to submit the necessary supporting documents.
Now, let’s delve into the specific documents and records that the CRA requires during an audit. The auditor will carefully review the following information to assess the accuracy of your original filing and determine if any reassessment is necessary:
- Previously filed tax returns
- Credit history
- Details of property ownership
- Bank and credit card statements
- Mortgage documents
- Information pertaining to the auditee’s spouse, common-law partner, and/or family members that may impact their tax return
- Information from a trust or corporation, if applicable
- Any adjustments made by your accountant or bookkeeper that have an impact on your taxes.
By meticulously examining these records, the CRA aims to ensure the integrity of the tax filing process and identify any discrepancies or potential reassessments that may be required.
Addressing Missing Documentation and Proving the Correctness of Your Return
What if you find yourself unable to provide all the documentation requested during the audit? According to Canadian law, individuals are obligated to retain records for a minimum of six years. In the event that you realize a document is missing, there is a good chance you can obtain a copy from the relevant issuing organization. This may involve retrieving copies of receipts from suppliers or acquiring bank statements from your financial institution.
Now, let’s explore the scenario where the person successfully demonstrates that their original tax return was indeed accurate. If the audit reveals that everything from the original filing was correct, the auditor will issue a completion letter, signifying the closure of the audit. It’s certainly cause for celebration!
Addressing Filing Mistakes and Challenging the CRA’s Assessment
What happens if the Canada Revenue Agency (CRA) identifies an error in your tax filing? In such cases, two possible outcomes exist: either the CRA determines that you owe additional taxes, or, although less likely, they may find that you are entitled to a larger refund. To communicate the reassessment, the CRA will issue a proposal letter that outlines the reasons behind the reassessment. You will then have a 30-day window to either accept or dispute the proposal.
But what if you disagree with the CRA’s reassessment and believe it to be incorrect? In that situation, it is crucial to initiate the appeals process by filing a Notice of Objection. This action allows you to formally challenge the CRA’s assessment. Additionally, if you are dissatisfied with the conduct of the auditor assigned to your case, you have the option to file a formal complaint directly through the CRA’s website.