Many people fear the CRA tax audit. It happens when the Canada Revenue Agency, CRA, evaluates your business books to determine whether you have paid your tax returns entirely.
Being audited is not similar to being reviewed. But if you fail to respond to a review or if the CRA is dissatisfied with your response to a review, this may prompt a CRA tax audit at any moment. Usually your tax returns will be audited in four years since the issuance of the original notice of assessment. Note also that if the Canada Revenue Agency thinks you have committed fraud it may audit you without a notice.
What if you are picked for a CRA tax audit? It may be an unfortunate thing to happen to you but you must remain strong. The CRA audits are not uncommon. They happen all the times for varied reasons. So it is in your best interest to do the following if you are picked for a CRA tax audit:-
- Cooperate and coordinate with the auditors.
- Organize your documents well so that you can turn them in fast when requested to.
- Be polite and respectful when answering questions.
- If you aren’t feeling confident enough to face the auditors, get a tax firm professional to assist you. They can either offer advice or become your representative.
Another matchless tip is to learn to accumulate past tax records and receipts. Having information or records about your taxes for the last six years can be very helpful when you are about to go through a CRA tax audit. The clearer the information you provide the lighter the impact of the auditing process will become.
Can the CRA tax audit be avoided? The answer is an absolute yes. First you want to get into a habit of filing your tax return on time. Every late tax filing raises a red flag.
Another way to avoid a CRA tax audit is to stay away from lies or misrepresenting information. Always report your income as it is particularly those of you who have personal businesses or are paid salaries in cash.
The CRA professionals use tricky ways to ascertain whether you have given incorrect information about your income. It may take a sample out of a group of taxpayers, such as those who have a business such as yours or those who receive their salaries in cash. Then it will check if your income tax returns stand out. If your returns seem suspicious then you could get a surprise CRA tax audit. It is important to avoid inaccuracy in your computations.
Finally you should avoid all the tax schemes that have received a lot of warnings from the Canada Revenue Agency. Mainly these are schemes that result in misrepresented donation receipts valued at three or four times the actual figure you have donated.