The Canada Revenue Agency, or CRA, regularly conducts audits across the country. If you have just found out that your business is going to be audited, there is no need to panic. An audit is a routine process for CRA. The cause of the audit may be worrisome, however, unless you have really fudged your books or conducted an illegal activity, there is no real reason to panic.
With so much so of disinformation surrounding CRA audits, here are 7 things you should be aware of.
You may have been Selected Randomly
There is always a chance that your business activated an audit trigger, such as failure to report income, claiming an aggressive tax shelter, or reporting recurring losses, however, in many cases CRA’s audits are random.
It can happen to any business as a routine check and does not necessarily suggest that your business is being targeted due to a wrongdoing.
Expect a Detailed Audit on-site
The audit will be as detailed as possible. CRA does a thorough job, using a fine comb to ensure that no detail is left out. The audit will occur at your business’s physical location, so you have to make certain that every necessary document is available.
Have all your Documents in order
It helps to spend a day in advance to get all your documents in order. You need to have every shred of financial document ready. This includes:
Documents for personal or business purchases
Any other tax-related documents
You should also have all the necessary documents as far back as 6 years, since CRA does require that you keep records for the last 6 years.
It will take Time
CRA audits are known to take anywhere up to a few hours and even go up to a few weeks. You will have to play a balancing act to follow CRA’s requests and processes along with having your business operations run without interruptions.
Have your Accountant present
If you are not the person managing the bookkeeping and accounting, you can have your accountant with you during the audit. Your accountant would be the best person to answer the queries of the auditors and provide relevant documents.
This also gives you a free reign to ensure that business operations run as usual.
Demonstrate Valid Claims
The CRA auditors may present a counter-claim to any expense or tax benefit that your business has claimed. You need to be able to demonstrate that your claim is valid by presenting the required documents.
The CRA auditors are not looking to impose fines and penalties on your business. If an error is identified as an honest mistake or wrongful interpretation of a tax regulation, you will just be required to make the correction and pay any outstanding tax balance.
CRA audits are standard procedures and it is the government’s process of ensuring that businesses are staying within compliance.