Canada Revenue Agency – audit, introduced a new procedure. In the 2021 federal budget, the government proposed amendments to the Income Tax Act and other statutes confirming that CRA auditors would have authority to require individuals to answer questions or provide assistance as part of an audit, and that auditors would have the authority to require individuals to respond to questions orally or in writing in the form specified by the auditor.
During an audit, the CRA closely examines the books and records of a taxpayer to confirm whether they are fulfilling their tax obligations, following tax laws correctly, and receiving the benefits and refunds to which they are entitled.
Why does the CRA choose a client file for an audit?
The CRA chooses a file for an audit based on a risk assessment. The assessment looks at a number of factors, such as the likelihood or frequency of errors in tax returns or whether there are indications of non-compliance with tax obligations. The Canada Revenue Agency – Audit process also looks at the information it has on file for the taxpayer and may compare that information to similar files or consider information from other audits or investigations.
The audit process
A CRA auditor will contact you by mail or phone, or both, to start the audit process and tell you the date, time, and location of the audit.
Normally, an on-site audit takes place at your residence, your place of business, or at your representative’s office. The auditor will present you with a valid identification card upon arrival, and then start the audit. An on-site audit often allows questions to be addressed quickly and can minimize delays in completing the audit.
If an audit is not done on-site, it will take place at a CRA office. The CRA makes the best use of its resources by centralizing the management of some audit files in particular CRA office locations. This means that you may be assigned an auditor who is located outside your region. In that case, the auditor will ask you to bring or send any supporting documents required for the audit.
What does an auditor examine during an audit?
An auditor will examine books and records, documents, and information (collectively referred to as records). These include the following:
information available to the CRA (such as
credit history, and property details)
- your business records (such as ledges, journals, invoices, receipts, contracts, rental records, and bank statements)
- your personal records (such as bank statements, mortgage documents, and credit card statements)
- the personal or business records of other individuals or entities not being audited (for example, a spouse or common-law partner, family members, corporations, partnerships, or a trust [settlor, beneficiary, and trustee])
- adjustments made by your bookkeeper or accountant for tax purposes
The auditor could also inquire the following-
- Your personal records and the personal or business records of other individuals or entities are legally considered to be part of the items that relate, or may relate, to a tax return being audited, and can be reviewed by a CRA auditor.
- An auditor can examine the records of family members.
- An auditor may ask the employees who do your accounting entries about your business operations.
During an audit, the auditor may find issues and discuss them with you. You can also raise concerns with the auditor at any time.
Result of an audit
- no adjustments will be made to your previous assessment
- an adjustment resulting in more tax owing will be made (reassessment), and you will have to pay the balance owing
- an adjustment resulting in less tax owing will be made (reassessment), and you will be entitled to a refund
How long does it take to do an audit?
The time it takes to do an audit depends on a number of factors, such as:
- the state of the records
- the scope of the audit
- potential delays due to missing records
- consultation with other CRA tax specialists
Good records and co-operation with the auditor will reduce the time it takes to do an audit. If requested records are not provided or are hard to find, delays can result. Taxpayers who choose to prepare their own tax returns without a solid understanding of the tax laws also commonly trigger a reassessment. Many taxpayers attempt to navigate a CRA audit without professional help at the initial stage in the process. This is not always a wise move as the average taxpayer is not aware of the intentions behind many of the questions asked by the CRA auditor.
At RAPC we can give you the professional advice to help you during the stressful audit process. You can depend on our technical knowledge and experience and expertise. Please call us at 403 281 8926.