Facing a Tax Audit or have back tax issues?
The Canada Revenue Agency has two major tools when it comes to reassessing the income tax returns of Canadian individuals and businesses; a 'tax audit' is one of those procedures. As a Canadian taxpayer, it is important to understand how tax audits work and how you should respond if you are selected for a tax audit.
When Does A Tax Audit Occur?
A 'tax audit' occurs when the CRA examines your financial books and records to determine whether you have paid all your income taxes. A 'tax audit' is different from a 'tax review'. Tax reviews are conducted by the CRA as a way of promoting awareness of and compliance with Canadian tax laws. During a review, the CRA is simply looking to confirm the accuracy of your income tax return. The CRA may ask for documentation to support tax credits or tax deductions. For example, they may ask for tuition slips or fuel receipts to support employment expense tax deductions. Tax audits on the other hand tend to be more intrusive and are often conducted because the CRA suspects tax fraud or has found something unusual with your income tax return.CRA may review the entire books and records of a taxpayer and request supporting documentation.
Chances of A Tax Audit Occuring?
Your chances of being tax audited by the CRA are low if your income tax return and your tax deductions are simple and standard. Wage-earners and pensioners who have their income tax automatically deducted are at low risk of a tax audit. On the other hand, self-employed individuals and individuals with commission based income are at a higher risk of a tax audit. If you've had previous disputes with the CRA, your chances of a tax audit will increase as well.
Tax Audit Period
The CRA has the right to conduct tax audits within 3 years of the date of the original assessment notice; however, you can be selected for a tax audit anytime if the CRA suspects you of income tax fraud.
Tax Audit Penalties
If the CRA finds conclusive evidence that you tried to cheat the system, the punishment can vary from various fines to jail time in rare cases. For the most part, the CRA will charge you a reassessed amount that you must pay, in addition to a penalty which can be as large as 50% of the tax owing.
How To Help Avoid A Tax Audit
As a taxpayer, there are several things you can do to avoid a tax audit. Be sure to file your income taxes on time as being late can increase your chances of a tax audit. Double check your math as inaccuracies on your income tax return may raise a red flag. Keeping organized records can help you support your claim while being able to locate the necessary paperwork quickly. Always cooperate and respond promptly to the CRA, and of course be polite; if you do not respond to CRA’s correspondence, they will rule against you by default. Most importantly, be reasonable in the claims and tax deductions that you file and don't make things up.
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When facing a tax audit, getting the advice of a qualified tax professional can save you time, stress and money. Attempting to handle your own tax issues can be a poor and costly decision. Don’t make that mistake, the tax accountants at Tax Doctors Canada will make sure your interests are protected to the fullest and save you money and aggravation. We have a time proven record of success dealing with tax audits and back taxes with many happy clients.
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