There are CRA hot buttons that are red flags for a tax audit.
However, you and your tax specialist could also be completely above board and follow every rule in the Income Tax Act and CRA could still contact you for an audit.
Tax audits can be random or triggered by an unusual tax filing or comparison of information to third-party sources such as tax information slips.
It’s good to know why you could be selected and it’s good to always be prepared with good records and bookkeeping.
CRA could select you for an audit if you’re in a cash business where receipts may not be needed or payments may be made in cash.
They could be targeting a particular group or businesses where there are indications of significant tax filing non-compliance within the group.
For instance the construction and trades industry is often targeted because there are a lot of cash transactions.
You could be chosen for audit in what is known as a secondary review.
CRA could select you for a tax audit if they’re already auditing a spouse, investor, supplier or subsidiary.
Accurate and detailed records are your best defence when CRA comes to audit you.
It can also help to have an experienced tax professional in your corner.
The Income Tax Act is large and daunting, not to mention the numerous income tax interpretation bulletins which can make taxes a gray area when it actually comes to tax preparation and ultimately defence during an audit.
Appropriate tax planning and good records along with the expertise and knowledge of your tax professional will help make the audit process easier for you.
Read our previous blog post, How to Survive a CRA Tax Audit, for more tips to help you when chosen by CRA for a tax audit.
On average, you should expect to lose 10 days to comply with a CRA audit.
A farmer can expect to lose 5 days work on the farm in complying with a CRA audit.