Area of Law: Tax Law
Answer # 200
Audits by CRARegion: Ontario Answer # 200
If you are audited, your tax return will be reviewed and your records will be examined. Canada Revenue Agency may determine that you owe more or less tax for that year. Most audits are not criminal investigations but are done to determine whether the taxpayer paid enough tax.
In extreme cases, CRA’s Criminal Investigations Program (CIP) will investigate if a taxpayer has been intentionally evading taxes, which may result in prosecution similar to a criminal prosecution.
If CRA is going to audit you or your business, they will contact you by mail, telephone, or by both to start the audit process. You will be told the date and time of the audit and where it will be located. Because there are many fraudsters purporting to be calling from CRA, it is best not to give any personal information over the telephone, including your SIN. Simply ask the person on the telephone to mail you their request to the last known address they have on file for you. If it is really CRA calling they will comply. If the person calling tries to bully you or threaten you, simply hang up.
If you are being audited, it is advisable to consult a lawyer or an accountant about your rights and the process before you meet with the auditor. It is also a good idea to have a copy of all of the documents an auditor will look at, as they sometimes take away documents, and documents also get lost during an audit process.
While an audit normally takes place at a person’s personal residence, place of business, or their lawyer’s or other representative’s office, in some circumstances, it may take place at a CRA office. Also, in simple desk audits, the documents requested are faxed or mailed to CRA and an in-person meeting is not required.
What does an auditor review?
The auditor will review your income tax return, and will usually want to see bank account statements, original receipts, your books or records, and financial statements from your business.
The auditor has the legal authority to inspect any documents that relate to the tax return being reviewed. This can include:
- Previous tax returns filed;
- Credit bureau searches;
- Personal records, such as mortgage documents and credit card statements; and
- Personal or business records of other businesses or individuals, including family members.
The auditor also has the authority to enter a business premises without a warrant and require the owner or manager to provide reasonable assistance. However, an auditor does not have the authority to enter your home unless you agree to it or the auditor gets a warrant from a judge.
What happens after the audit?
After an auditor completes his or her examination, they will usually decide one of two things.
If your previous tax assessment was correct and nothing has to be done, the audit is closed and you will be sent a completion letter.
In most cases CRA will find errors that require you to pay them more in taxes. If the auditor finds that there were errors in your return, the auditor will usually first give you a chance to provide further information that might explain the situation before finalizing the audit. If the auditor finds that your tax return was incorrect, you will usually receive a Notice of Assessment or Reassessment which corrects the tax return and shows if there is any tax money owing. In rare cases it is possible for the Assessment or Reassessment to find that CRA owes the taxpayer money.
If you are found to owe more tax than you thought or if you are charged a penalty, you have the right to appeal.
How long does an audit take?
An audit can take anywhere from two weeks to several years. Time frames vary depending on many factors, such as: the state of the records; the scope of the audit; delays due to missing records; and meetings with other CRA tax specialists. In addition, although there are time limits for the taxpayer to supply CRA with further information and answers to their questions, the time limits for CRA auditors to respond are far more liberal (even as long as 12 months) and are often the cause of delays.
How long should you keep your tax records?
In most cases, CRA can reassess (review) your tax returns for the previous three years and audit them for the previous four years. However, CRA can go further back and there is no time limit as long as there is suspected fraud or misrepresentation on the part of the tax payer. Generally, you must keep all required records and supporting documents for six years from the end of the last tax year they relate to.
CRA can also arbitrarily assess or guess your income if you have not kept all your returns and supporting documentation. Common records to keep include:
- All T-slips
- RRSP contribution slips
- Medical receipts
- Charitable donation receipts
- Self-employed and business revenue and expense records
For general information, contact Canada Revenue Agency.
For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact Tax Chambers LLP
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