Information Sheet – Canada Revenue Agency Income Tax Audits

The following comments are made with respect to Income Tax Audits conducted by Canada Revenue Agency, herein referred to as “CRA.”  These procedures apply to (i) income tax audits (ii) GST audits and could apply, in whole or part to audits conducted for (iii) PST, (iv) WSIB.

Overview

Taxpayers may be asked to submit to an audit examination.  Normally a time and date are scheduled for such examination.  It is CRA’s standard procedure to request that examination occur at the taxpayer’s place of business.

The CRA has the full authority to examine all books, records, and supporting documentation necessary to determine the accuracy of the income tax returns filed.

It is our policy to insist that clients do not speak with the CRA auditor without our attendance.  Alternatively, if you do wish to speak to the auditor, or handle the audit yourself, a “coaching” session will be offered.

When dealing with the auditor, it is best not to engage in a conversation.  Get the questions and then answer them fully and frankly.  Remember the auditor is an experienced interviewer.  Your role, if you decided to answer any questions, is to answer the question raised, no more, no less.

Audit Examination Planning

When the audit is scheduled, we normally arrange a meeting with the client well before the auditor is to arrive.  A number of steps are undertaken, depending upon the “type” of an audit, the number of years covered, etc.  Some of the steps and procedures we undertake include, and are not limited to:

Educating the Client

A telephone call from CRA may create anxiety with the client.  Normally, CRA contacts the taxpayer first.  We should be immediately contacted.  Normally, CRA follows up with a standard form letter.  Our first step is to meet with the client and explain the audit process, when it will occur and how long it will take.

Review of Tax Return(s)

Our next step is to briefly review the tax return(s) and supporting documentation with respect to the tax years being audited.  This will assist us in reminding you and us of areas where the CRA may take a contentious position.  Also at this time we will review the level of documentation that exists.

Meeting the Client

After we have reviewed the return(s), a meeting is typically scheduled to meet with the client and discuss the examination and formulate an “audit” strategy for dealing with the CRA auditor.

Reviewing Documentation

When meeting with the client, we review the documentation in our files and determine what documentation we require you to assemble.  This prevents the auditor from obtaining any extraneous information by observing the client’s business or talking with their personnel.

Strategy

In discussing strategy, we focus on where the examination should take place and the client’s participation in the examination process is reviewed.  We recommend that the audit be conducted at our office.  This prevents the auditor from obtaining any extraneous information by observing the client’s business or talking with other personnel.  It also provides the opportunity for us to control the audit.  There are a number of other reasons which we will be happy to discuss with you why the audit should be conducted at our office.

Assembling Information

As soon as you or we are contacted, we will determine the scope of the audit.  This will allow us to advise you, what to assemble for the auditor and will expedite the audit process.  Your, and our preparation, will also give the auditor a greater degree of confidence that all areas are well documented and have been examined and could speed up the examination process.

Research

It is our practice to ensure that we are aware of all issues before the auditor’s arrival.  This will involve a “frank” discussion with you regarding the payment of expenses by your business and any areas that we should be advised about.  We will review these matters and conduct any research well in advance of the audit date and aim to know the facts and law better than the tax auditor, in anticipation of his questions and, or concerns.  The research will allow us to properly organize the documentation for presentation to the auditor.

Conducting the Audit

This involves a number of steps, not limited to the following:

  • Meeting with the Auditor
  • Providing information to the Auditor
  • Addressing any issues identified by the Auditor
  • Negotiating with the Auditor
  • Settlement of Income to be Reassessed
  • Follow up with Auditor
  • Follow up meeting with Client
  • Conducting a post audit review

Other Steps and Procedures

It is beyond the scope of this overview to outline all of the other steps and procedures that could result from an audit, but these could include:

  • Filing notice of objection forms
  • Meeting with the Auditors or Appeals Officers
  • Negotiating with Collections
  • Appealing under the Fairness Rules and Regulations
  • Making an application to Right of Access to Information Act
  • Appeal of Income Taxes assessed to Tax Court of Ontario and, or appeal to Federal Court of Canada

Special Investigations

At times where tax evasion is suspected, an auditor from the Special Investigations Division of CRA may be assigned to conduct an audit.  These auditors are only involved where tax evasion is suspected and they will only be utilized where there is already some evidence of tax evasion.


If you are contacted or requested to meet with an officer from the Special Investigations unit, it is HIGHLY RECOMMENDED that you do not attend the meeting alone.  Legal counsel may also be recommended to be obtained.  We have a tax lawyer available to our firm to assist, if this situation develops.

Conclusion

Again, our role is to assist you, to make your life easier and remove any stress.  If we conduct the audit at our location, we achieve these goals and keep in touch with you, sometimes on a daily basis, during the audit, so that you are aware of the progress and conclusion of the audit.

If you should any questions with respect to the above, please do not hesitate in calling me at 905-528-0234 or email Joe at joetruscott@josephtruscott.com.