How CRA Audits Are Conducted

Few situations are as dreaded as being audited by the CRA, and for good reason. CRA reps have broad powers and can make determinations regarding your tax reporting that can be financially ruinous.

If you’ve been notified of an impending audit, you can’t afford to go it alone. Speak with one of Ontario’s leading professional income tax lawyers as soon as you can. Even if you feel it’s a simple issue that can be easily cleared up, speaking to an auditor without knowing Canadian tax law can make your situation considerably worse.

Initial Audit Notification

If the CRA chooses you for an audit, you’ll be formally notified by mail. This notice will inform you of the specific years under audit and the documentation they expect you to present, such as:

• Past tax returns.
• Personal and business files.
• Family financial records.

The notice will also advise of the audit’s scheduled date, time, and venue. (Audits can occur at your business or within a CRA facility.)

Steps to Take After Receiving an Audit Notice

Upon receiving an audit notification, it’s crucial to be cooperative with the CRA, but only provide the specifically requested documents.

Prepare and organize all documents that validate the figures you’ve reported on your returns. Given the audit’s implications and the CRA auditor’s objective to identify discrepancies, self-representation is a bad idea.

As soon as you receive an audit notice, talk to a tax lawyer to ensure you don’t cause yourself any more trouble. A tax lawyer can advise you on what you can reasonably expect to happen. They can also notify the CRA that they are representing you, which will likely alleviate any pressure they may be putting on you.

Common Audit Missteps to Avoid

Don’t do any of the following if you’ve been notified of an impending audit:

• Ignore communications from the CRA. Neglecting them only leads to missed deadlines and a presumption-based audit that will not go in your favour.
• Overshare with the CRA auditor. Even if well-intentioned, you must assume that anything you say to them will be used against you.
• Surrender and accept the CRA’s audit conclusions. Due to the exhaustive nature of audits, some taxpayers might agree to incorrect reassessments for closure. Challenging such determinations with expert assistance from a tax lawyer can lead to significant savings and stress reduction.

CRA Audit In-Session

During the audit, the CRA official will review:

• Record books like ledgers and journals.
• Banking details and statements.
• Sales bills and purchase receipts.
• Vehicle logs and other supporting evidence justifying your tax return.

The auditor will ask you about anything they believe to be a discrepancy. You can also ask questions of them. Remember, your answers can cause the auditor to make decisions that could be financially devastating, which is why representation during an audit is critical.

Audit Duration

The audit’s duration depends on:

• The number of years being inspected.
• The completeness and availability of your financial data.
• The necessity for collaboration with other CRA experts.

It’s in your best interest to promptly organize all your documents and look for ways to replace any missing documents upon receiving the audit notice.

Audit Completion

Once the audit wraps up, a summary letter will be provided with a decision that either:

• No adjustments are necessary.
• A reassessment entitles you to a refund.
• A reassessment necessitates additional tax payments.

If additional taxes are due, an estimate will be provided by the auditor to facilitate payment before interest begins accumulating. If you disagree with the reassessment, either you or your representative can challenge it.