It’s every taxpayer’s worst nightmare: a notification from CRA Canada Revenue Agency that you are going to be audited. CRA sends more than 30,000 such letters a year. You are right to be afraid because it is often a time-consuming and costly process to deal with. Tax audits generally stretch through several months but could last years in more complicated cases. Make sure you hire a Chartered Professional Accountant. Even simple audits are full of traps and pitfalls and, if you attempt this so-called simple work on your own, it is very easy to make mistakes and then regret it later.
TAX TIP The end of your tax audit is not the end of the story. Once the process is completed, CRA will send you a Notice of Assessment or Reassessment, indicating taxes owed as well as any interest and penalties. You then have 90 days to file a Notice of Objection. For audit assistance or our tax preparation services, please contact us now.
Your income tax return is recorded in a computer system that enables CRA to select returns to be audited. This system also lets them sort returns into various groups to help with their selection.
These are some common ways CRA selects tax returns for audit:
- Computer-generated lists
Most returns are selected for audit from computer-generated lists. For example, the computer system can compare selected financial information of taxpayers engaged in similar business or occupations and generate lists of returns with audit potential. From these lists CRA then chooses specific returns to be audited.
- Audit projects
In some cases, CRA tests the compliance of a particular group of taxpayers, for example, real estate investors or construction contractors. If the test results indicate that there is significant non-compliance within the group, CRA may audit its members on a local, regional, or national basis.
Leads include information from other audits or investigations, as well as information from outside sources.
- Secondary files
Sometimes CRA selects files for audit because of their association with other previously selected files. For example, if you are in partnership with another taxpayer, and that person’s file has been selected for audit, your tax return may be selected for audit too.
TAX TIP Whatever your audit might involve, the important thing is to promptly reply to the CRA, without volunteering information that they are not entitled to receive. You want to co-operate because you are required to co-operate, but not beyond that. For professional advice on any tax audit or other tax matters, please contact us now.
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