Area of Law: Tax Law
Answer # 199
When does CRA conduct audits or investigations?Region: Ontario Answer # 199
Canada Revenue Agency (CRA) may choose to audit an individual or business even if there is no apparent reason to do so. Generally, CRA can only audit someone up to four years after a tax return has been filed, although, in some cases, such as cases of suspected fraud or misrepresentation, CRA can go farther back and there is no time-limit for the re-assessment. Generally, it is recommended that people keep their records for at least six or seven years.
Most audits are done to determine whether the taxpayer paid enough tax. In extreme cases, if the CRA suspects a taxpayer of fraud or wilfully trying to evade paying taxes, the CRA’s Criminal Investigations Program (CIP) may conduct a criminal investigation.
When does CRA audit a taxpayer?
If there is an inconsistency in your reporting, such as not including income that an employer has reported, CRA may simply review and reassess your tax return. In a review, income amounts, deductions, and credits on a return are all reviewed for a one specific year to be sure they are reported correctly, and if CRA finds a mistake or discrepancy, they may request supporting information or documentation for a specific amount.
An audit is an extensive examination of an individual’s income tax return, and usually for more than just one year of returns. The CRA may choose to conduct an audit based on a number of factors, such as:
- the frequency or likelihood of errors in tax returns
- indications of non-compliance with paying taxes owed
- information not consistent with other similar files or other audits or investigations
- non-compliance by an outside source or from another government investigation
CRA may also
- target a group of businesses or individuals to audit as part of an initiative to raise levels of compliance within the group
- audit someone who is financially linked to someone who is already being audited, for example business partners
For more information about audits, view topic #200 Audits by CRA.
When does CRA conduct criminal investigations?
CRA usually chooses to begin a criminal investigation based on information they have received from a number of sources, including:
- referrals from within the CRA, including from previous audits;
- tips from individuals provided to the CRA informant leads program;
- information from various law enforcement agencies; and
- information from pubic sources such as media
Types of cases investigated
The CRA is most likely to investigate cases that involve the following:
- significant cases of tax evasion with international aspects
- promoters of organized, sophisticated tax schemes intended to defraud the government
- joint investigations with other enforcement agencies (e.g. cases of tax evasion involving money laundering and terrorist financing)
- large cases involving income tax and/or GST/HST tax evasion
Investigations involve gathering and analyzing evidence, carrying out search warrants, and conducting interviews with taxpayers and witnesses. A report is then prepared and sent to the Public Prosecution Service of Canada to review the evidence and support the decision of CRA to lay criminal charges. These types of cases are complex and usually take years to complete.
If convicted of tax evasion, individuals must pay the taxes owed, plus interest, but also face various penalties, including court fines and jail time.
For additional information about Canada Revenue Agency investigations, visit the 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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