First, don’t panic! This can happen for several reasons, and it isn’t uncommon for a business to be audited by the Canada Revenue Agency (CRA). Although the idea of being audited can be somewhat alarming, having a better understanding of the process and knowing where to get help can be an effective and less painful process.
The first thing you should understand is being audited does not mean you did anything wrong.
There are a variety of reasons why the CRA audits a business.
– You were selected randomly
– Your return had errors in the tax credits and reductions that were made
– The deduction or credit greatly differs from the previous year
– Your Information did not match what was submitted to the CRA (i.e., your banking details)
It’s important to note, if your tax return is being reviewed, the CRA will reach out to you either by mail, phone, or both. They will ask you a series of questions (i.e., SIN, dependants, a recent contribution to your RSP, etc.). Always be mindful of who’s calling and ask them for their credentials. They’ll usually provide their name, title, and office location as a way of introduction.
During that conversation, they’ll run you through the details of the audit, the documentation they require and the deadline. It’s vital you remember this deadline, so you avoid being reassessed for not reaching out in time.
The information they request depends on what they’re reviewing on your tax return. It could be a specific credit or an overview.
– Bank statements
– A record of your spouse, family members, corporations, trusts, or partnerships
– Ledgers or journals
– Previous tax returns
– Mortgage Information
– Credit card statements
– Records of any adjustments made by your accountant
After you provide all the information, there are three potential outcomes.
1. No adjustments made – this means your return had no errors and the CRA is content with what they’ve found.
2. They owe you – they decided an adjustment needs to be made in your favour where you’re entitled to a credit or refund of the taxes you paid (rare, but it happens!)
3. You owe more taxes – after the review, they decide an adjustment needs to be made which results in you owing the CRA for more money. Keep in mind, late fees, and penalties for not paying on time will apply.
The safest way to ensure your business avoids being audited is to hire a professional bookkeeper or accountant to help you with your taxes. DMC ensures your books are kept clean, neat, and organized throughout the year for tax season so you can avoid stress. In the event you do get audited, our team is always ready to help you through the process. We’ll work directly with the CRA to ensure they receive the necessary documents on time and resolve any potential issues. We’ll be your righthand for anything that needs to be resolved so you can continue going about our business – that’s the DMC difference.