Getting Audited by the CRA? Here’s How To Handle an Audit
An audit from the Canada Revenue Agency (CRA) can make any honest taxpayer anxious if they make any mistake on their tax returns. This happens to many people as the CRA reviews their tax payments and financial records.
The CRA will audit your return to ensure you’ve paid the right amount of taxes. However, they don’t randomly choose whose returns to audit.
The CRA audits suspicious returns, which may have errors based on their criteria. This may sound alarming, but you must remember that an audit doesn’t mean you are being accused of any wrongdoing.
They will examine your records, books, and documents during an audit. They will also ask you for more relevant information on your tax return. So, you must provide all the required information and ensure you know every detail on your return.
If you are being audited for your personal taxes, there are some things you can do to survive the audit. You can start with the following:
Assess the Audit Letter Thoroughly
Read the letter carefully and ensure you understand what the CRA needs from you. Suppose you don’t have a financial advisor. In that case, you may hire a tax attorney or an accountant to review the audit letter and determine the issues.
Prepare all the documents and information that the CRA is requesting. Be sure you can answer their questions about your activities and finances.
Additionally, it would be best to hire a tax professional to act for you and settle things, especially if the issues are more technical or need interpretation of the law.
Prepare Your Documents and Records
Before you respond to the CRA, look for and organize your accounting records from the previous year. These include invoices and receipts for expenses and income, accounting books and ledgers, bank statements, cancelled checks, titles and leases for business property, and hard copies of tax-prep data.
If the CRA requests certain documents to review, ensure they are accessible. However, suppose you don’t have records or documents to prove some items on your return. In that case, you will have to reconstruct them from other journals or third parties, such as an affidavit.
Answer the Questions and Keep a Tax Professional Involved
The auditor will ask you several questions about your tax return once you sit down with them. Experts advise not to provide information or records you are not required to give. These include the records from previous years’ tax returns.
Ensure to provide only the information requested. Giving them unasked or unrequired information will lead to more questions and concerns. Also, be direct in answering questions and avoid creating excuses.
However, if you think you can’t deal with the CRA well and are worried that you might say something that could lead to another problem, let your tax expert do the talking. You may give the CRA a signed power-of-attorney form to allow a tax professional to deal with them directly.
Even if your tax professional doesn’t have a power of attorney, they should be present when you meet with the CRA auditor. This way, they can advise you on what to do during the interview.
Handle an Audit Like a Professional
You may feel anxious when your return is audited, but being prepared and honest can help you with the process. Determine the issues and information the CRA requires and prepare all the necessary documents and records.If you need help with things, seek help from the experts to avoid trouble during the interview. Lastly, ensure all the details on your tax return are accurate before submitting it to avoid future audits.