Revenue Canada Audit: 5 Steps To Get You Through It

Revenue Canada AuditEvery Revenue Canada audit is different but generally my first comment to people is to try not to get too stressed about it. It’s a process and a part of Revenue Canada’s continuing efforts to ensure the right amount of taxes are paid. They’re not picking on you even though most people tend to feel like that is the case.

There could have been a red flag that popped up or a particular reason why it came up on their end, but quite often there is just a lot of random, annual audits.

The first thing that generally happens is that you receive a letter that advises you that the Revenue Canada audit will be taking place and it generally has a big laundry list of stuff that the CRA will want to see.

Some things that might be requested during a Revenue Canada audit:

  • Payroll records
  • General ledgers

These days they will typically prefer to have this info sent electronically so they can add it to their databases, giving them the ability to search for it easily. They’re able to conduct the Revenue Canada audit more efficiently if they have electronic versions.


Once You Receive The Letter…Revenue Canada Audit

After you have calmed down, make sure the first thing you do is phone your advisors. Your tax advisor is key in this situation so immediately notify them that you have just received a letter and tell them what the CRA is asking for.

They are likely to tell you that you should not do anything but immediately fax the document over to them.

The reason why I always want to see the exact document is because a Revenue Canada audit can be for GST, payroll or everything and I need to know that information as a tax advisor before I can give proper advice.

Related:  Top Secret Tax Breaks Every Entrepreneur Should Know About


Once Your Tax Advisor Has Seen The Letter

Revenue Canada AuditAs soon as your tax advisor has had a chance to analyze the document and understand your personal situation, they will make a phone call to the auditor to let them know you have received the letter and find out when the audit will take place.

Although it will usually tell you when the Revenue Canada audit is happening in the letter, there can sometimes be a certain amount of flexibility, depending on the situation.

For example, a specialty audit might have a CRA official coming through Kelowna that week and they will say that is the week it has to be.

That said, if your records aren’t ready (they should be if you filed a tax return), if you are going on vacation, just lost your bookkeeper or some sort of strange situation has occurred, then you can be some level of flexibility when that audit is going to be.


Where Should The Revenue Canada Audit Take Place?Revenue Canada Audit

My recommendation is to have the audit take place at your tax advisor’s office. Here at BDO, we generally provide that auditor with their own office and bring the client records they have requested.

Before any of that takes place, your tax advisor will have sent off the requested electronic records ahead of time and the CRA will request you bring all the additionally needed records to a meeting place. In my experience, the CRA auditor will want to have that meeting place at the premise but my recommendation is they come to our offices.

The reason why I suggest this is because it’s convenient. When you bring somebody out to a working office that isn’t used to having someone else sit in there shuffling through papers and file cabinets, it can be distracting to the business.

I always offer to have the auditor work at our offices and that works out very well because we have a nice facility for them that they can use freely.

Usually the auditor will still want to go on-site to the business they are auditing at some point. This lets them see with their own eyes that there is a functioning office with real employees working.

Related: Do I Need An Accountant When Being Audited?


After The Auditor’s Initial Meeting & Interview

Make sure your tax advisor is present during these meetings with the auditor so that they are aware of what is being said. This is really important!

Once the auditor has come out and gone through some questions about the business they will then proceed to do their work. This can take anywhere from a couple hours to a couple weeks, sometimes longer.

When the work on-site is complete, there is usually a meeting that talks about their findings to clarify anything else they might be looking for. A couple weeks later you will receive a letter from the auditor with their findings and discussing what they would like to do.

At that point in time you would get in touch with your tax advisor to discuss whether or not the assessment is accurate and if the auditor’s understanding of your business is accurate.


Do You Accept The Audit Or Contest It?

Once you’ve sat down with your tax advisor to assess the auditor’s findings, you will decide if you are going to accept the Revenue Canada audit as they’ve written it or is there a need to negotiate and further clarify certain aspects that you feel may or may not have been misunderstood.

At the auditor stage there is a certain level of negotiation so we go through the discussion with them on how they might be incorrect with their assumptions. Once we have that discussion, it is in the auditor’s hands.

Some auditors will just issue the letter based on what they originally found, meaning that phone call and discussion was ineffective.

Other times that phone meeting will prove to be enough to show the auditor that their findings weren’t exactly what they thought. Some time afterwards, we will receive the revised assessment and we either pay it or enter into the objection process.

Related: How To Stop Yourself From Getting Nailed With A Big Tax Bill


The Most Important Thing To Remember

Revenue Canada Audit

The key to dealing with an auditor is to not get upset or concerned. As long as you aren’t doing anything wrong, you have nothing to be worried about.

Most people are filing their taxes correctly and it’s important to note that there are a lot of interpretations within the Canadian Tax Act so there could very well be a different interpretation between you, your tax advisor and Revenue Canada. It doesn’t mean anyone is right or wrong, it’s just an interpretation.

Make sure you act on the Revenue Canada audit in a timely manner, as you don’t want to upset an auditor. They are doing their job and if you want to make it difficult for them, they might make it difficult for you.

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