After receiving your notice of assessment, you may receive an inquiry notice from the Canada Revenue Agency (CRA) requesting additional documentation. For instance, if you claimed a medical expense deduction on your electronic tax return, the CRA may ask for receipts to verify your eligibility for the deduction. Respond to the request within 30 days with organized paperwork to avoid the CRA disallowing your deduction and potentially auditing you for tax audit.
To prepare for a potential review, it’s recommended that you keep your tax records for six years. An audit is an examination of your financial records to ensure that you’ve paid all the taxes you owe. The CRA may conduct a desk audit to investigate specific aspects of your return, such as business income, declared losses, or real estate transactions. Alternatively, the CRA may conduct a field tax audit by physically visiting your home or workplace.
If you receive a notice that you’re being audited, it’s important to know what steps to take next.
Cooperation and Respectfulness: Key to Dealing with the Canada Revenue Agency (CRA) Tax Audit
When faced with an audit by the CRA, ignoring the issue is not a viable solution. In fact, it’s highly likely that you will be audited at some point. Instead, it’s best to stay organized and cooperate with the process. Being respectful and responsive to CRA requests will likely make the process smoother and increase the chances of a favorable outcome.
Seek Professional Assistance
When you receive an audit letter from the CRA, it is advisable to seek professional assistance promptly. The earlier you seek advice from a qualified professional, the stronger your case will be.
While you may not need to hire a lawyer, a tax accountant with a CPA designation can be helpful if you have claimed what you were entitled to and have the necessary documentation. However, if there are gray areas in your case, your books are not well-organized, or you suspect your accountant made an error, it may be necessary to turn to a tax lawyer. This is especially true if the CRA decides to do a net-worth audit.
During a net-worth audit, the CRA calculates your net worth over a period of three years to determine if you have underreported your income. This method can be unreliable, and auditors may use it as a shortcut instead of carefully reviewing your documents. If you believe your case is headed in the wrong direction, it may be time to seek legal assistance.
Clarify Your Goals: Are You Seeking Victory or Settlement?
Before embarking on an audit process, it’s important to understand your end goal. This means asking your representative about your chances of success right from the outset. If it turns out that the Canada Revenue Agency (CRA) is in the right, then the best course of action is to own up to your mistake, make the necessary payments promptly, and minimize the interest and penalties.
It’s worth being cautious of an accountant who might advise you to pursue a claim with little merit in order to avoid admitting to an error. If you’re uncertain about your case, you can always get a second opinion from a tax lawyer, who will provide a one-hour consultation at a cost of between $200 and $1,000.
Stay in touch with your tax representative!
It is not enough to simply hire someone to guide you through the audit process. During the busy period between May and June, accountants can easily become overwhelmed, leading to certain tasks falling by the wayside. Therefore, it is essential to ensure that there is regular communication between you and your representative regarding the audit’s progress. If you notice a lack of communication, follow up to ensure that everything is on track.
Consider appealing the case if it’s reasonable and justifiable.
After the audit, the CRA will send you a letter indicating whether you have made any errors and owe additional taxes. You have 30 days to dispute these findings. The CRA will then review the matter again and respond. If you are still unsatisfied with the assessment, you may challenge it in tax court. However, before proceeding to court, make sure that the amount of tax under dispute (including interest and penalties) justifies the cost of hiring a lawyer.
In conclusion,
While this article provides a general overview of tax rules, it is always recommended to seek specific tax advice from a Professional Accountant. With their expertise, you can ensure that you have the best possible support working for you.