WHAT SHOULD YOU KNOW ABOUT CRA AUDITS ?
Why does CRA do audits?
As part of their regular activities, the Canada Revenue Agency (CRA) selectively audits tax returns. They do this to ensure the integrity of our self-assessment tax system and make sure that tax returns and claims are prepared properly.
What does an auditor do?
The auditor will begin by giving you some general information, such as the scope of the audit, what years will be covered, how much time the audit may take, and what information the auditor will need from you to do the work.
The auditor will respond to your questions, is expected to inform you of your rights and obligations, and respect the confidential nature of information obtained during the audit.
The auditor may conduct a combined audit of both the Income Tax and GST/HST returns at the same time. The combined audit process is easier for the taxpayer than the process of being subject to two separate audits.
What are your responsibilities?
By law, you have to keep adequate books and records to determine your tax obligations. Generally, books and records must be kept for a minimum of six years.
If you use a computer to maintain your accounting records, you must keep the books and records in an electronically readable format, even if they are also kept on paper.
Using the services of a tax professional does not relieve you of these responsibilities.
For an audit, CRA will ask you to make available to the auditor your books and records (both paper and electronic), any supporting documents, and explanations to the questions the auditor will have.
What happens in an audit?
CRA is expected to work towards a relationship based on co-operation, openness, and transparency—key factors in an efficient audit. CRA has a vested interest in making sure audits are conducted efficiently and concluded in a timely fashion.
Location and materials – The tax auditor will generally do the audit on your premises. However, in some situations, the auditor will borrow your books and records and give you a detailed receipt for the borrowed documents. It may also be necessary at times to make copies of your electronic records.
Time involved – The time an audit takes depends on the state of your accounting records and related documents, as well as the size and complexity of your business. Your co-operation will help keep this time to a minimum.
Discussing issues – During an audit, the auditor will identify issues and discuss them with you. At any time, you can also raise your concerns with the auditor.
Responding to an adjustment proposal – The auditor will discuss any proposed adjustments and explain the rationale for them. The auditor will give you a reasonable amount of time (usually 30 days) to respond to the proposal.
Before finalizing the audit, the auditor will carefully consider your explanations and respond to your questions about the findings. If issues remain unresolved, you can contact the auditor’s supervisor to discuss them further.
Notice of Assessment and Notice of Reassessment – If CRA has to adjust your return, the auditor will arrange to have a Notice of Assessment or Notice of Reassessment mailed to you. If the adjustment results in an increase in the amount of your refund, a payment may accompany the notice.
