What Happens When You Get Audited?

Tax audits can be a daunting prospect for anyone, regardless of their country of residence. In Canada, the Canada Revenue Agency (CRA) is responsible for administering tax laws and ensuring compliance. While most taxpayers never face an audit, it's important to understand the process and what to expect should you find yourself in this situation. Here are a few things that happen when you get a Canadian tax audit, providing insights and guidance to help ease your concerns.

Initial Contact:

When the CRA selects you for an audit, they will typically notify you by mail or phone. This initial contact will outline the reason for the audit and provide instructions on how to proceed. It's crucial to respond promptly and provide the requested information within the specified timeframe. Pay attention to all deadlines that are provided. If you miss their deadline they have the right to reassess you without seeing anything.

Gathering Information:

The next step in the audit process involves collecting and organizing the relevant documents and records. These may include income statements, expense receipts, bank statements, invoices, and any other supporting documentation. Thorough preparation and documentation can help streamline the audit process and demonstrate your compliance.

Field Audit or Desk Audit:

The CRA conducts tax audits in two ways: field audits and desk audits. A field audit involves an auditor visiting your place of business or residence to review your records onsite. On the other hand, a desk audit is conducted remotely, with the CRA requesting you to submit your documents by mail or electronically. The CRA will inform you of which type of audit applies to your case.

Auditing Process:

During the audit, the CRA auditor will review your financial records, transactions, and any supporting documentation. They may seek clarification on certain items, request additional documents, or ask specific questions related to your tax return. It's essential to be cooperative and responsive during this process while maintaining accurate and transparent communication.

Assessment and Findings:

Once the audit is complete, the CRA auditor will provide you with a summary of their findings. They will indicate whether any adjustments are necessary, which may result in additional taxes owed, a refund, or no changes to your original tax return. If adjustments are proposed, you will have the opportunity to review and discuss them with the auditor.

Dispute Resolution:

If you disagree with the auditor's findings, you have the right to dispute them. This involves engaging in a formal appeals process, wherein you can present your case and provide any additional evidence or explanations to support your position. The appeals process provides an avenue for a fair resolution in case of disagreements.

Penalties and Interest:

In cases where the auditor determines that you have underreported your income or committed other tax-related errors, penalties and interest may apply. The CRA imposes penalties for late filing, failure to report income, negligence, or other non-compliance issues. Understanding the penalties and interest provisions can help you navigate the audit process more effectively.

Make sure to discuss the CRA audit request with your accountant before you give CRA any additional information. 

While the idea of a tax audit may be intimidating, it's important to approach it with calm and preparedness. By understanding the Canadian tax audit process, gathering the necessary documentation, cooperating with the CRA, and seeking professional advice when needed, you can navigate through the audit process smoothly. Remember, audits are a means for the CRA to ensure compliance, and with proper preparation and compliance, you can mitigate potential issues and maintain your peace of mind.

For more information, visit the CRA website.

Disclaimer: The information provided in this blog is for general informational purposes only and should not be construed as legal or professional tax advice. It is advisable to consult with a tax professional or seek guidance from the Canada Revenue Agency for specific inquiries related to your tax situation.