Getting Audited? Here’s What You Should Know

Getting audited by the CRA (Canadian Tax Revenue) is scary. It’s the stuff of nightmares. There are multiple reasons why your personal or business finances have been audited. The best thing to do with an audit is to cooperate and be honest. Here is everything you should know about getting audited.

Audit Reasons

There are tons of reasons you could be getting audited. Cash businesses such as restaurants get audited more frequently than others. Businesses that claim to make more than the industry average for the year are also at a higher risk of being audited. The CRA also has audit projects, where they will target certain industries that have a higher non-compliance rate.

You could also be audited because of a something called a secondary review. That is when the CRA audits you because you are a spouse, investor, and supplier of a company or individual that is undergoing a main audit. This is done so that your records match the ones of the main audit. The CRA will also do random audits. Always make sure you are compliant because being resistant will only make things worse.

Audit First Steps

The first thing that will happen during an audit is that you will be contacted by the CRA. Make sure you receive a written notice to make sure it’s a legitimate audit and not a scam. Ask them for a list of documents they want and work on compiling them. Make sure to contact your Toronto chartered accountant to get their aid with this.

Documentation

Certain documents will be required during a CRA audit. Sometimes all of them are requested and other times it's only specific ones. Receipts, bank statements, income forms and other documents will be requested. Work with your accountant and bank to make sure you get everything they ask for.

Addressing Problems

The CRA should be clear about what issue they want to resolve with an audit. Maybe they disagree with you about income or expenses you claimed. Maybe the car expenses you claimed aren’t accurately documented. The key to a smooth audit is to show valid reasons and support for your claims.

Results

All issues will be resolved at the end of an audit. You might have to pay a balance or you might not owe anything else. The CRA will send you a document letting you know. You and your accountant will have some time to decide if you accept their results or if you want to challenge them.

Conclusion

An audit is scary but it isn’t the end of the world. Stay calm and honest. The best thing to do is consult your small business accountant at every step of the way. It’s important to remember that just because you’re being audited doesn’t mean you did anything wrong. Stay compliant and things will work out.