9 tips to keep the Canada Revenue Agency happy — and what to do if you do get audited

Colleen Ellison, CPA, CGA, CA Presley & Partners Chartered Professional Accountants

Canada Revenue Agency (CRA) audits are a drag — they’re stressful, time-consuming and they take you away from your work.

Though there’s no way to guarantee you’ll never be audited, there are a few things you can do to lower the chances. Here are nine tips to help reduce your risk of being audited, followed by what you should do if the CRA contacts you for an audit.

  1. Keep good records and documentation of your business and personal transactions.
  2. Seek advice on the best practices in accounting.
  3. Report all income, including investments in stocks and/or bonds. If there’s income that’s unaccounted for, that will raise a red flag and likely cause the CRA to be in touch to find out why.
  4. Don’t claim losses from a business that’s really a hobby.
  5. Comply with all CRA rules, such as filing your returns and making payments on time.
  6. Avoid associations with individuals and businesses that don’t comply with tax laws, as you could end up getting audited along with them.
  7. Be respectful in your relationships, including with employees and other businesses, as the CRA acts on anonymous tips.
  8. If the Canada Revenue Agency contacts you, be co-operative — not being so could lead to a full audit.
  9. Don’t try to pass off personal expenses as business expenses.

What to do if the CRA contacts you for an audit

Our suggestion is to speak with your accountant before confirming a time and/or place with the CRA. We often offer our office as a neutral meeting place away from your home or business; however, the CRA can insist on conducting the audit at your place of business.

What will the auditor examine?

A CRA auditor will look at your books, records and other documents, including:

  • information available to the CRA (such as tax returns previously filed);
  • your business and personal financial records;
  • the business or personal records of other related individuals or entities not being audited;
  • adjustments made by your bookkeeper or accountant to arrive at stated income for tax purposes.

During the audit, the auditor will likely come up with a proposed reassessment that could result in owing more taxes or a refund. The proposal letter will explain the reason for the reassessment, and you will then have 30 days to agree or disagree with the proposal.

This is your opportunity to explain factual disagreements. Your accountant should be involved in this process. You may ask that the auditor’s team leader get involved if you’re unable to resolve issues.

Hopefully at the end of this process, you’ll be comfortable with the result and a reassessment will be issued. If that’s not the case, you and your CPA will need to discuss the next steps.

Colleen Ellison is a Chartered Professional Accountant, CGA, CA and Partner with Presley & Partners, CPAs and Business Advisors, in Courtenay, BC. She can be reached at 250.338.1394 or cellison@presleyandpartners.com.

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