CRA AUDIT REPRESENTATION ACROSS CANADA
Our clients always ask us how likely it is to be audited and why does the CRA conducts Audits. There are mainly 2 reasons why CRA audit you. The first is through a random selection and use of a statistical tool to randomly select you for an audit based on probability. The second way is through a target selection process based on a number of criteria such as:
CRA Audits can be stressful, time-consuming and can create unnecessary hardships. The audit by CRA is a process wherein the CRA would closely examine your books and records to confirm whether you have correctly fulfilled your tax obligations, followed the tax laws correctly, and received the benefits and refunds to which you are correctly entitled to.
CRA during an audit may examine books and records, documents, and information (collectively referred to as records) for example filed tax returns, credit history, property details, business records (such as ledgers, journals, invoices, receipts, contracts, rental records, and bank statements), personal records (such as bank statements, mortgage documents, and credit card statements), 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]).
After the auditor examines the records provided either a correct assessment will be issued i.e. you do not owe any taxes or there will be a situation where you need to pay taxes or are entitled to a refund. You will have 30 days to agree or disagree with the proposal.
If you disagree with the proposal, you are encouraged to contact the CRA to explain why you disagree and provide any other documents that support your position.
Our team of experts can help you with the below Tax Audit Support:
- Developing a hands-on strategy to discuss with CRA and managing the process of tax audit
- Negotiating with CRA to ensure a fair and transparent process
- Ensure that penalties and prosecutions are minimized to an acceptable level
- Reviewing the submission and representation before the CRA
Proper documentation and strong evidence are the keys to putting across your points to the CRA. A CPA Firm doing a tax audit can help in sailing through this challenge. However, if you come across the fact that any tax errors have been made that need to be resolved, we provide the support to correct them. We will ensure accuracy and proper source documentation papers with your records to satisfy the CRA Audit.
Get in touch with us now if you feel you can be audited, or you have received any notice or an information request from the CRA. SDG Accountant has been assisting clients with audit proceedings and has represented many clients successfully. Call us at 416-755-3000 or e-mail us at [email protected] for CRA representation and audit support.
What May Trigger a CRA Audit
- Changes in income or expenses – CRA likes consistency when there is a sudden spike that will cause suspicion
- Continuous Losses in Business – In the CRA’s view, having losses for several years when a business first begins is quite normal. When there are repeated losses year over year, this raises the question of why and how the taxpayer is continuing to operate the business with continuous losses. Expect a letter or call from the CRA.
- Using industry standards as a benchmark for your expenses – If you are a real estate agent, it is unlikely you are incurring travel expenses 10x more than your industry average unless you are a superstar agent who entertains clients on a private yacht on the harbour. Let’s be real, expenses which are significantly greater than peers in your industry will raise eyebrows.
- Industry codes tell tails – If you are self-employed or operating through a corporation, you are required to report your industry code. This will give the CRA more insight than you think. Based on the industry you are operating in, CRA has tools to give them insight into your profit margin range. If you are under-reporting Net Income this may be visible through your industry’s average profit margin ratio.
- Making little but donating much – We all aim to be generous, but in reality, we can only give a portion of what we earn not equal to or greater than. If you are donating almost everything you are earning, then CRA questions how you are able to stay afloat given that you are earning close to what you are donating. Donations should be in line with how much revenue you are churning out and if things are not adding up, then charities may not be the only organization you end up giving money back to.
- Not Reporting T-Slips – If you receive any form of T slip such as T4, T4(OAS), T4(p), T5, T4A, etc., the CRA should have a copy of these slips on their end. If your tax return is missing any of the slips in which they have on their end, then this will trigger an audit as your tax return is incorrect or the employer must have accidentally issued a wrong slip.
- Due from Shareholder – This is a big one that a lot of small corporation owners are not too familiar with. The main principle is if the corporation advances a loan to the shareholder must repay the loan within a year. If it is sitting on the books for more than 1 year or it is a series of consecutive shareholder loans originating from the previous, then CRA will want to investigate further and potentially add the loan into the shareholders’ income at a high rate.
- Home Office Write-offs – We all want to be able to claim write-offs on the business usage of our personal residence. However, this leads taxpayers into making unreasonable claims of their personal expenditures as tax write-offs. This will definitely have the CRA on your case.
- HST return vs Tax Return – If the sales reported on your HST return differs from the numbers reported on your T1 or T2 return, this may certainly lead to an audit. Corroborating information in both tax filings accentuates accuracy and avoids the risk of CRA questioning the discrepancies.
With our ability to decipher and resolve complex tax and accounting issues and proactively engage with our clients, we are a one-stop-shop accounting firm in Toronto. Please contact us directly at 416-755-3000 or by emailing us at [email protected] to book a consultation if you are looking for a competent corporate tax accountant in Toronto to handle your business or corporate income tax return.
Having a trusted advisor who knows how to communicate with relevant tax authorities makes a huge difference in solving your tax issues. I have represented hundreds of individuals & corporations in resolving a number of issues with the Canada Revenue Agency such as Corporate tax audits, HST audits, re-notice of assessments, Payroll audits, Personal tax audits, requests to file, Foreign property reporting penalties, and much more.”
Sam Ghaith, CPA, CGA
Owner & Founder