A CRA tax audit happens when Canada Revenue Agency (or the CRA) sends you a Notice of Assessment for the purpose of examining your books of accounts. This assessment is all about determining whether you have included all details and paid the correct taxes due to the government. A CRA tax audit is not the same thing as a tax review. A review could lead to a tax audit if the CRA does not show satisfaction to your response.
Your tax returns can be audited within a period of four years from the time of the first Notice of Assessment by the CRA. If the CRA has any reason to believe that there may be a fraud involved in your tax returns, then the CRA tax audit can be sprung on you at any time.
When you are audited, the first thing you have to do is to get professional help to represent you in your tax matters. It is wise to seek advice from a tax professional and make the firm act as your tax representative. It will be in your best interest to be totally cooperative with the CRA tax auditor and to answer all queries thoroughly. You have to ensure that you are providing complete information with all supportive documents if they are requested. A CRA tax audit of your returns or that of your business can cost money and will take up valuable time of yours, besides causing much stress.
It is possible to consciously avoid a tax audit. There are various ways that your tax consultants can help you avoid a CRA tax audit:
- Keep away from schemes that teach you to buy low and donate high. CRA has also come out with warnings about taxation schemes that account for donation receipts which are three or four times in value to the original amount that is actually donated by the taxpayers. When the CRA gets wind of such types of claims, you are very likely to be audited.
- Make sure you are filing your tax returns within the time deadlines. Late filing of tax returns does boost up the chances of you being audited.
- Get your accounting done correctly. Inaccuracies could lead to scrutiny of your returns with suspicion, leading to a CRA tax audit.
- Make your returns complete with full details and reports. Declare your earnings in full, particularly when you are paid in cash or if you are self-employed. CRA has the habit of comparing taxpayers who are in similar kinds of businesses to spot if something stands out for them. CRA also examines a particular taxpayer group where people earn most of their income through direct cash receipts.
Wage earners could feel a bit relieved, merely for the reason that the CRA does not generally audit those kinds of individuals who earn salaries and wages. This is because their tax amounts are already collected through the deductions in the payroll system of the companies they are working for. CRA checks and satisfies itself on the income earned by these wage earners against the information that is filed by their employers.