If you’re a business owner, there’s a good chance you’ve heard about the audit the Canada Revenue Agency (CRA) implements periodically. But what does it mean? How do you prepare for it?
This article will answer your questions about the CRA audit process. You’ll also learn what to do if the taxman comes knocking.
What is a CRA audit?
A CRA audit is an examination of a taxpayer’s financial records. It should not alarm you if you run a tight ship and have clean books. However, you might be in hot waters if you miss out on declaring some expenses.
Below are some of the most critical questions to which you must know the answers regarding this process.
What is the time limit for a CRA audit?
The time limit for a CRA audit is six years from the date you filed an income tax return. This CRA audit time limit applies to both individual taxpayers and businesses. So you should keep all financial records that support your return.
Can the CRA extend the audit time limit?
The CRA can extend the audit time limit in certain circumstances. One of these instances is when they believe there is evidence of fraud or criminal activity.
Sometimes, a taxpayer makes false statements, files false returns, or attempts to evade paying taxes. When this happens, the CRA can extend the time limit to make room for more investigation.
What if the audit finds that you have underreported your income?
Suppose the CRA audit finds that you have underreported your income. In that case, you will be liable for back taxes, interest, and penalties. You may also face criminal prosecution. Contacting a lawyer as soon as possible is essential to protect your rights and minimize potential penalties.
What are your rights during a CRA audit?
You have certain rights while the CRA is auditing you. These include:
- The right to know why you are under audit and the requested documents.
- The right to obtain copies of documents and records requested by the CRA.
- The right to challenge any document or information you believe is incorrect or incomplete.
- The right to obtain the audit report’s copy and the findings and conclusions reached by the CRA.
- The right to appeal CRA’s decision on your return.
How can you protect your rights during a CRA audit?
You can protect your rights during a CRA audit by retaining an experienced tax lawyer. Your lawyer can help you understand the scope of the audit, negotiate with the CRA on your behalf, and represent you in court if necessary.
How To Prepare for a CRA Audit
When the CRA is auditing you, you must prepare beforehand. Be sure to observe the following tips:
- Make sure you have all of your financial records ready. The CRA will want to see documents relating to income, expenses, assets, and liabilities.
- Be organized and keep track of all communications with the CRA. That will help ensure a clear record of what is happening during the audit.
- Stay calm and cooperate with the CRA. Remember, the audit does not indicate that you have done anything wrong. Be honest and forthright in your dealings with the CRA so that everything will result in a smooth resolution.
The Bottom Line
If the CRA is auditing you, staying calm, cooperating fully during the audit, and being honest with them is essential. Also, remember that you have certain rights regarding these audits. You can protect these rights by having an experienced tax lawyer or accountant who can help you navigate this process.