So you received either the dreaded phone call or brown envelope from the CRA announcing that you have been selected for an audit – not the best of days but all is not lost. This is definitely not a “do-it-yourself” type of situation. The stakes are far too high. Hiring the proper tax professional to provide high level audit support will help you successfully navigate the treacherous waters of a CRA audit.
To highlight the many pitfalls of an audit, and why you won’t want to go it alone, I will describe a typical audit process:
THE CALL: A phone call from the CRA is received advising that you and/or your company has been selected for an audit and a meeting is arranged in about 2 to 4 weeks. You will be advised which period of time is being audited (usually a 2 year time frame) and what you are expected to make available for the auditor at the meeting. A letter is usually sent confirming the details of the phone call.
- The INTERVIEW: Prior to the interview, the auditor will have done a “desk review” of the CRA’s internal information they have about you, your company and industry. Based on this review, they auditor will come armed with several pages of questions. The auditor will meet with you and your representative and interview you about the various questions he or she will have about your specific business and your role in the company. The interview will last approximately 2 hours but may be a bit longer or shorter depending on the extent of the questioning. If you do provide any documentation that you want returned, ensure that the auditor provides you with a “borrowed books and records” receipt and that it is filled out accurately and with appropriate detail.
- The WAITING (and more questions): At the conclusion of the interview the auditor will take the information you gathered and go back to his office to pour over every detail of the information you provided. After his or her review, the auditor will contact you with even more questions – this time the questions will be very specific and probing. This is the most dangerous part of the audit where most people who represent themselves, get into more trouble than necessary. In cases where the auditor suspects suppressed income or other tax evasion, a referral may be made to the criminal enforcement division.
- The PROPOSAL: After you have provided the auditor with all the documentation, information and answers to their questions, the moment of truth has arrived – the proposal letter. This is the letter where you find out all of the adjustments along with any related penalties the auditor will be pursuing. You usually will have 30 days to respond to this letter with any additional facts and reasons that the auditor may not have considered to date.
- The FINALE: The 30 days has passed, you made your last attempt to convince the auditor to reconsider his or her position. Now comes the final letter. More often than not, the final letter will be a rehashing of the proposal letter. In other words, the auditor hasn’t changed their mind and has advised you they are moving ahead with their adjustments.
As you can see, the audit process has many pitfalls to make a bad situation (the audit) much worse (a huge tax bill). Therefore it should be abundantly clear that the importance of good audit support, from a qualified professional is essential to avoiding these pitfalls and helping you achieve the best possible outcome during the audit.
If you’ve received the call from a CRA auditor and want to protect yourself, especially if you know that you may have made some errors in your income reporting, call Tax Solutions Canada today at 1-888-868-1400.