The absolute last thing that any individual or business owner wants to face is a CRA audit! When most think of CRA audits they envision a CRA auditor coming out to their office and performing a complete review of the books. There are many different divisions within CRA that deal with audits. There are also many different types of audits – some more formal than others.
There are many instances where taxpayers receive correspondence from CRA requesting additional information to support a tax return. If you get one of these letters, pay close attention to the title of the writer. If you see the word audit, examiner or compliance in the title, you are being looked at. How you handle the request will determine whether you are audited or have your return re-assessed without an audit (based simply on CRA’s determination/evaluation of the answers and documents that you provided at their request).
Here are some of the different audit divisions within CRA and what they do:
Office Exam – this audit division within CRA handles the most common form of audit reviews. Typically an ‘examiner’ will send out requests for documentation to support donation claims, moving expenses, child care and more.
Office Audit – this audit division only handles audits of individuals, not corporations. The division is one step up from the Office Exam division and will request information to deal with issues like rental or business losses. These audits can be performed through requesting information by mail or in-person.
Audit – this is the division that performs full-on audits of both individuals and corporations. Audits are categorized by income ranges. Generally speaking, the higher your income or sales the more senior the auditor will be that is assigned to your file.
Aggressive Tax Planning (ATP) – formerly known as Tax Avoidance, this is an audit division within CRA that deals with individuals and corporations where it appears that the individual or business is following the Income Tax Act but it is suspected that their tax activities are more than likely not meeting the “spirit” of what the Income Tax Act intended. A good example of this which has made many news stories over the past few years, are donation tax shelter schemes. These reviews are done exclusively by ATP. If you are contacted by an auditor from this area, you are also more likely at risk of being assessed gross negligence penalties (these are higher penalties than regular CRA penalties).
International Tax – this division of CRA deals with companies and individuals with foreign assets and/or who are doing business abroad.
It is important to note that if you are contacted by an auditor from CRA you should immediately seek professional advice. Do not assume that you have nothing to hide and if you are open it will work out well. CRA auditors are out to find something and their interpretation of what you provide and say can lead them to a wrong conclusion – and then you are in a fight to reverse the assessment. An audit can result in regular penalties, interest, gross negligence penalties and even criminal prosecution. If you have been audited and CRA has determined that you owe them money and/or has even assessed a penalty there is a process to object to the outcome or the audit. This process begins with an objection and if rejected can even be pursued in tax court. Where objections are concerned time is of the essence and any request from an auditor or re-assessment of your tax return should be tended to right away.
For more information about types of CRA tax audits or if you have been or are being audited and need advice please contact Tax Solutions Canada by filling out the contact form or calling 1-888-868-1400.