Dealing With a CRA Tax Audit: 5 Valuable Tips for Your Business
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Did you get a tax audit notice from the Canada Revenue Agency (CRA)? Plenty of factors may have triggered this. These could include misreported income, large business expense deductions, revenue discrepancies or other areas of non-compliance. If you want to avoid getting audited by the CRA, keep away from these triggers.
But if your business is already subject to an audit, it doesn’t matter what specifically prompted it. Whatever it is, the CRA tax auditor will closely examine and inspect your books and records. All you can do is cooperate and ensure you handle it properly. Or else, the process can escalate to a tax investigation and may lead to expensive financial consequences.
When you find your business getting audited by the CRA, what should you do? Consider the valuable tips we’ve put together below:
1. Understand the Type of Audit You’re Going Through
An audit by the CRA typically starts with a letter informing you that it’s going to happen and when. The CRA may do an on-desk audit where they will dig deeper into a specific aspect of your return and request further documentation. It can also be an on-site audit where the CRA auditor will show up at your place of business and complete a thorough examination. So make sure you understand what kind of audit they will perform on your business.
2. Prepare and Organize Your Records
Generally, the audit letter will specify the documents and records the CRA wants to audit and the corresponding years. Gather the appropriate information they are requesting by using accounting internal audit services. But while it’s important to be cooperative, remember your rights as a taxpayer. You can ask the CRA auditor to explain their request. Only when everything’s clear when you provide the requested documentation.
3. Respond to the CRA Request Promptly
It’s essential to respond to the CRA request promptly and with all the requested information. The CRA has a specified time frame for you to provide documents or comply with an on-site audit. Typically, it’s 30 days from the date you received the letter.
However, if you think the audit is taking place at the worst possible hectic time, you may ask for an extension. You just have to ensure that it’s reasonable. However, delaying the audit appointment because you don’t have the data together may complicate the process. This is why it’s vital to keep detailed records at all times.
4. Get Assistance From a Tax Professional
The moment you get an audit letter from the CRA, get assistance from a tax professional to prepare and organize your records. They can also represent you during the audit, especially if it needs to be done on the field.
A tax professional is better equipped to understand your taxes and business transactions. This means they can provide accurate responses and faster access to documents, making the audit process smoother.
5. Be Prepared to Make Adjustments
Once the CRA completes the tax audit, they will send you a proposed statement of adjustment. Through the help of a tax professional, you can appeal to the CRA assessment. The CRA auditor can also make mistakes, and a tax professional can help you detect them. But in case the rebuttal still doesn’t go in your favour, be prepared to make an adjustment and pay any additional taxes and interests.
Avoid Tax Audits in the Future
Every small business has unique circumstances. But the best line of defence for all companies is to avoid tax audits in the future. Make sure to comply with the tax laws and regulations. And don’t hesitate to get help from tax professionals, such as accountants and lawyers. Investing in automation software may also help reduce errors that can lead to tax audit triggers.