I. What is a Tax Audit?
The CRA checks many tax returns each year. The process is designed to keep everyone honest when declaring taxable income and real property. There are several ways a person could be chosen for a tax audit. This includes a random selection of returns for review, selecting returns with information discrepancies, and even reselections of current returns with a past tax audit.
There are three types of tax audit reviews performed by the Canada Revenue Agency (CRA).
Pre-Assessment Review Program
The first tax audit review is called the pre-assessment review program. The pre-assessment tax audit is an electronic review of credits and deductions of a random series of tax returns. This type of review offers the tax filer a chance to correct or adjust areas of misunderstanding found in the return.
Processing Review Program
The second tax audit process is called the processing review program and it follows an unsuccessful pre-assessment review. A Notice of Assessment is issued and if no error is identified, the tax filer will receive a letter requiring no adjustment. If an error is found, documentation must be provided to the CRA to correct or amend the error.
The third possible tax audit issue could occur from the matching program, a review process that matches information from third parties such as a bank or another source of income against the tax return belonging to the third party slip. If a discrepancy is found, the tax filer is notified and documentation must be provided to the CRA for clarification.
II. How to Survive the Tax Audit?
There is no doubt that tax audits are grave and terrifying. The CRA conducts these audits to check if the taxpayer deliberately or erroneously claimed deductions or exemptions that they should not have. It is important to understand that the CRA initiates a tax audit only when they see revenue potential in a case. Moreover, the CRA initiates an audit only when they are sure that there is a problem with the taxpayer returns.
Recognize the deduction and exemptions
The best way to survive a tax audit is to recognize the deductions and exemptions that are defendable. If you are not certain of your tax knowledge, then hiring tax professionals such as Tax SOS can give you the edge that can help you face the CRA. A tax professional can help you communicate with the CRA and increase the chances for a quick resolution to your tax problem.
Maintain receipts, ledgers and business accounts properly
Keeping receipts, ledgers, and business accounts is important in case a tax audit occurs. The burden of proof lies on the taxpayer and the CRA makes an assumption of guilt in all erroneous tax audits. Do not destroy documents or try to amend a return that has been filed.
Prepare for the tax audit
Work diligently with your tax professional to ensure proper communication with the CRA auditor. Keep track of all communication and keep copies of documents provided to the Canada Revenue Agency.
Ensure that your income is sheltered in an approved fund
A tax professional can assist you in handling a tax audit at any stage of the process. Do not hesitate to call and make an appointment if you receive a Notice of Assessment from the CRA. If you have income in a tax shelter, have a trusted tax professional check all current and projected rule changes to make sure your income is sheltered in an approved fund.
Call a competent tax professional
Do not let a tax assessment distract you from your work and personal life. It is almost impossible to learn all the necessary tax rules to defend an erroneous tax return without the help of a qualified professional. Call a reputable tax professional and put your mind at ease. A qualified tax representative is the right resource to defend a tax audit.
So call Tax SOS at (877) 982-9767 or (416)623-9234 or complete the Contact Form to get started to defend your tax position. Don’t wait as the initial consultation is FREE, confidential and no obligation!