Many companies may experience a Canada Revenue Agency (CRA) audit. Here’s what you need to know:
Types of Audits:
Not all CRA audits are the same! In some cases, they may only want to see records pertaining to one area or it could be a full audit. Here are a few details regarding the different types of audits you can expect:
- A CRA audit of a tax return could look at a single month or the audit could cover multiple years’ worth of returns.
- Sometimes CRA will request supporting documents for numbers claimed on a tax return before issuing a Notice of Assessment. If a refund is being claimed, it will not be issued until they receive and approve of the information requested.
- A CRA audit could occur after a Notice of Assessment has been issued. They might perform a full audit, where they review the support for each line item reported on a tax return. A CRA audit could also be limited to one area such as meal and entertainment expenses, payroll, or GST.
CRA will not correspond by email
The CRA will either contact you by phone, by letter or both. They will provide you with a list of records they require, as well as the date they need those records by.
A CRA audit is conducted in one of two ways:
- Off-site – where you will need to either bring in, mail or fax the requested records to the auditor. In most cases, you will be given a case or reference number where you or your accountant can upload records securely through the CRA’s website. (Note that for off-site audits, the auditor may not be in your area. You may be dealing with CRA offices in other provinces. )
- On-site – where the auditor will come to your place of business to conduct the audit during the agreed upon time.
For these audits, the auditor will typically work in or around your area.
It is important to note that CRA will not correspond by email. You will never receive an audit notification or be able to send any records to an auditor using this method. If you do receive an email, be aware that it could be fraudulent. To learn more about how the CRA communicates with taxpayers about scams, click here.
A CRA audit will typically require:
- Full copies of the tax returns in question
- General ledgers/journals (you may be asked for backup copy of your records if they are in an electronic format such as Microsoft Excel, Sage or Quickbooks, etc.)
- Sales invoices and purchase receipts
- Copies of contracts or agreements in place
- Bank and credit card statements
- Adjusting journal entries posted by your accountants
- Accounting records of other people or businesses related to your business
The above list is not inclusive and CRA may ask for additional information and details regarding the area they are concerned about. For more about the accounting and tax records you need to keep and for how long, click here.
If the auditor finds that you have paid too much, you will be entitled to a refund.
Once the CRA audit is complete, there are three possible results:
- Correct assessment – they find that what has been filed on your tax return to be correct and no changes are to be made. If the auditor finds the assessment to be correct, a final letter will be issued to you.
- Taxes owing – you may need to pay additional taxes if the CRA finds more income that needs to be reported or expenses that are not allowed.
- Refund – yes this is possible! If the auditor finds that you have paid too much, you will be entitled to a refund.
If the auditor finds that you owe more taxes or are entitled to a refund, you will first receive a ‘Proposal Letter’ that will explain the changes they want to make to your tax return. You will typically have 30 days to contact the auditor with any additional information you would like them to consider.
Once this period has passed and all information has been reviewed, a final letter and a Notice of Reassessment will be issued.
What happens next?
If you do not agree with the results of the audit, you can appeal it by filing a Notice of Objection. A Notice of Objection can only be filed once you receive the Notice of Reassessment for the tax return in question.
The deadline for filing a Notice of Objection is 90 days after the date on your Notice of Reassessment. If you are past the deadline, you can also apply for an extension. For more information on next steps, click here.
If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.
Thanks to Stephanie Kwan of KWB Chartered Accountants for providing this content.