It is not uncommon for a business to be audited by the Canada Revenue Agency (CRA) and for most taxpayers, the idea of being audited is something that is dreaded by most small to medium-sized business owners.
But, having a better understanding of the process and knowing where to get help can be an effective way to help make the process easier and less stressful.
The first thing you need to know is that being audited does not mean you have done something wrong. The CRA selects business audits based on a number of factors including:
- Your return contains tax credits and deductions that most often have errors.
- A deduction or credit differs greatly from a previous year.
- You have been reviewed before and had adjustments.
- You were randomly selected.
- Your information doesn’t match the information submitted by other sources (i.e. financial institute).
If your tax return is being reviewed, the CRA will reach out to you by phone, mail or both.
In their communications, they will provide you with details of the audit, request documentation and give you a deadline. It is important to make note of this deadline so that you can ensure you are not reassessed simply for not reaching out, whether or not your claim was allowable.
The information requested by your auditor will depend on what area of your tax return they are reviewing. Sometimes it is a specific credit, while other times it is a more comprehensive overview.
Either way, the CRA may request the following documents, records, and information:
- Previously filed returns
- Credit bureau searches
- Bank statements
- Contracts
- Ledgers
- Journals
- Invoices
- Receipts
- Mortgage documents
- Credit card statements
- Record of spouse, family members, corporations, partnerships, or trusts
- Adjustments made by bookkeepers/accountants
At the end of every audit, there are three possible outcomes.
- No Adjustment – No adjustments will be made, your return was deemed to have no material errors.
- Reassessed for More Taxes – An adjustment was made that results in you owing the CRA more money; late fees and penalties may apply.
- Reassessed for Less Taxes – An adjustment was made in your favour and you may be entitled to a tax refund (or credit if you have unpaid taxes).
The most effective way to minimize CRA adjustments is to ensure your books have been properly kept and that tax law has been applied correctly by employing the expertise of our team here at Koroll & Company before submitting your tax returns. We can also help during the audit process to reduce the likelihood of adjustment.
If you have been selected for an audit, we can help you through the process. We will work directly with the CRA to ensure that they receive the necessary documentation, and we will work diligently to resolve any issues that may arise.
If it is determined that a reassessment, resulting in higher taxes owing, should be made, we will contact the examiner regarding the proposed reassessment and work to resolve the issue before the audit is finalized.
If you have already completed the audit process and an adjustment has been made, resulting in further tax owing, we can help you determine whether or not you have a realistic chance of appeal or objection.
If you do, we can help you file a formal dispute and assist in the objection and appeal process.
For more information on the audit process or to request the assistance of our team, contact us today!
