What You Need to Know About a CRA Audit
Most of us dread the idea of a tax audit. But once the CRA taps your business what happens? Here’s a quick summary of what happens during a CRA audit.
People shudder at the mere thought of being audited by the CRA. Even if you’ve filed your taxes correctly and have all of the backup information to withstand a full audit of your books, it could still be a nerve-wracking experience. Understanding what happens during the process and how to prepare for it could help you get through the ordeal with as little aggravation as possible.
How an audit begins
The CRA has a system that detects irregularities in the tax returns that they have on file. Some have simple errors, others have indications of fraud, and some are inconsistent with similarly filed returns. People who claim a large number of deductions, run a cash business, earn significantly more or less than others in their field or consistently report a yearly loss of income, are all prime targets for an audit.
How it works
The audit process begins with a letter or a phone call informing you that the CRA intends to audit your business and what exactly they plan to investigate. The auditor may request backup documentation for some of the information in your tax return. There is a possibility that after the initial contact, the auditor will decide that an audit is not necessary. If the auditor determines that your file requires more scrutiny, they will set a date and time for the audit.
Where it happens
Typically, the auditor will come to your home or business to conduct the audit. The assumption is that since people generally keep their important documents where they live or work, it is the most efficient location to conduct the audit. While it is uncommon, under certain circumstances, an audit will take place at the office of the auditor.
What the auditor will do
While every audit is different, all of a business’s financials and the owner’s personal finances are open to scrutiny. Personal expenditures, assets, bank accounts, real estate holdings, business ledgers and anything else you can think of, are subject to review if deemed necessary by the auditor. In some cases, the auditor may decide to extend the search to include the records of people related to or associated with the business owner.
There are three possible outcomes for an audit:
- The findings may show that your return was accurate, in which case the auditor will issue a completion letter and will close your file.
- The auditor might determine that you underpaid. Once they decide how much you owe, they will send you a bill for the balance plus interest. You will have 30 days to accept or disagree with the assessment.
- The conclusion may be that you overpaid and you are owed money.
A professional accountant could help guide you through the process to ensure that your audit goes smoothly. E&E Accounting Services is headed by a former CRA auditor who understands how the CRA operates and how to get you through an audit. Feel free to contact us for more information.
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