The prospect of being selected for an audit by the CRA is likely a scary one for many business owners.
But it doesn't have to be - not if you know how the process works, and not if you have a tax company on your side with experience in audit representation. Listed below are some frequently asked questions about CRA audits.
Q: When Can Audits Occur?
A: The CRA can audit a tax return at any point within 3 years of the date of the original notice of assessment for the tax year(s) being audited. Audits can also occur at any given point in time - not just at specific times around tax filing deadlines.
There may be a tax season, but there's no tax auditing season - that can happen all year long. For this reason, you always want to have relevant documents - regarding all of your businesses expenses and costs - on hand and in your office, all year long.
Q: How Does the CRA Determine Who to Audit?
A: The CRA has an entire team dedicated to analyzing, organizing and investigating businesses in regards to their tax compliance. In fact, the organization keeps tax compliance ratings on every business that pays their taxes on a yearly basis. So if your taxes look suspect one year, it may not get you audited - but it will contribute to the likelihood that you'll need to face an audit sometime in the future.
However, there's no one specific thing that determines whether or not a business will be audited in a given tax year. Sometimes audits occur because of a "tip" to the CRA, sometimes a specific document or cost will spur the CRA's need to conduct an audit, and sometimes a business' selection for an audit is completely random.
Q: How Long should I Keep Documents That May Be Relevant if I'm Audited?
A: When you're audited, an employee from the CRA will investigate your records, ask you questions, meet with your tax specialist representing you for the audit, and could generally investigate every figure or document that may regard the year or years being audited. Since the CRA can audit any return that has occurred within the last 4 years, it's often advised that businesses archive and maintain all documents regarding their taxes and finances for at least 7 years. This may seem like a big hassle - but it's not nearly as big a hassle as will occur if the auditor requests a document that you no longer have access to.
Q: When is an Audit "Finished"?
A: An audit can take anywhere from a single day to several weeks, and is only finished when the CRA is either satisfied that your tax payments are up to date, or have found that you owe funds for a previous year (or years). At this point, you'll either be free to do business or subject to the owed costs and fines - if it's the latter, your tax specialist representing you could suggest an appeal if it seems warranted.