The business audit process can be intimidating, but understanding what the process involves and what your role is can be a big step to alleviating that stress.
To help you better understand the process, Koroll & Company has answered some common questions about the Canada Revenue Agency (CRA) audit.
Why am I Being Audited?
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 information submitted by other sources (i.e. financial institute).
For more information on why you are being audited visit our recent blog - Why Is My Tax Return Being Reviewed?
How do I Know if I am Being Audited?
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.
Where Does an Audit Take Place?
When the CRA reaches out to you, they will let you know where the audit is taking place. It will take place in one of two places - on site or at their office.
On-Site: If the audit is on-site, the auditor will arrive at your place of business (or your accountant’s office) present ID and then begin the audit.
Office: If the audit is an office audit, the auditor will request that you bring documentation or send it to them via authorized communications. The audit will then be conducted at their office and they will continue to reach out to you via phone or mail to ask additional questions or request further supporting documents.
What will the Auditor Want to Examine?
The information requested by your auditor will depend on what area of your tax return they are reviewing. Sometimes it is a specific credit and other times it is a more comprehensive overview. That being said, 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 your bookkeeper or accountants
What are the Possible Outcomes of an Audit?
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 Fewer Taxes – an adjustment was made in your favour and you may be entitled to a tax refund (or credit if you have unpaid taxes).
How Long Does an Audit Take?
The time it takes to complete a business audit varies from one taxpayer to another, however, there are a number of factors that can cause delays, including:
- Organization of records
- Your cooperation
- Delay in providing documents
- Size and complexity of the business
- Missing record
- Your audit is selected for internal quality reviews
For more information about the business audit process, contact us today.
