What Classifies As A Specialty Audit?

kelowna accountantAudits have been a popular topic with readers here at Business Growth Strategies so this week we have Ken Davidson, a local Kelowna accountant, discussing the significance of a specialty audit.

A specialty audit would be a specific audit. There are a few different types but to give you an example from a few years ago, Revenue Canada decided they would audit all hair stylists. Whether or not you filed correctly or incorrectly, they decided that they felt there was a risk that hair stylists weren’t filing their taxes correctly.

Specific Transactions & Audits

Another type of specialty audit would be for a specific kind of transaction. For example, if you have an allowable business investment loss. Anytime my clients file for an allowable business investment loss I tell them that transaction will be audited and they should have their paperwork in place ahead of time. It’s a specific audit and they audit nearly 100% of them.  Make sure you keep your necessary documentation in place because the audit might not take place until 2 or 3 years later after filing.

Other types of specific audits would include GST/HST, payroll or virtually anything focusing on one specific thing.

It used to be set-up that if you filed HST returns on a regular basis and were always paying but all of a sudden you get a refund, that would almost always prompt an audit. That isn’t the way it is anymore because they have a better understanding of business and realize that can happen.

kelowna accountantWhen A Specific Audit Takes Place

Be aware that when a specific or specialty audit takes place, the auditor will also be checking other aspects of the business. If they are coming in for an HST audit, you can have confidence that they will check to make sure payroll is being done right and general deductions are being handled properly.

In the past, it was common that when a specialty or specific audit took place, they would want nothing but the records requested. Now they are a lot broader with the scope of their audits, so it’s important to keep that in mind.

The best thing you can do for yourself is keep track of all your records and collaborate with your tax advisor to ensure that you’re taking advantage of all legal tax deductions appropriately.

Related: Explaining Audits In Canada: Statute of Limitations

Have you ever had a specialty audit before? What tips would you share with readers to help them be prepared if it happens to them? Share in the comments below!

 

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