What Happens If You Are Audited by the CRA – Your Rights and Responsibilities
What happens if you are audited by the CRA? Will you be blindfolded and put in a small room with a bright light? Will the Men In Black cart you away in handcuffs?
There you are, an innocent small business owner, minding your own business, when suddenly the CRA comes calling. Immediately you go into panic mode and start planning to flee to Botswana – even though you are fairly certain you haven’t done anything wrong. Is all your alarm and dread warranted? It turns out that the process of a small business audit in Canada is pretty straight-forward.
Here’s a quick overview of your rights and responsibilities.
What are my responsibilities during an audit?
In order to be compliant, you must go on a quest during the first new moon and answer these three riddles or pay the dire consequences… Wait, that’s not true at all! Your responsibilities during an audit are actually very simple. Here’s a snapshot of the key items you need to know:
- By law, you are required to keep adequate books and records to determine your tax obligations and your entitlements. Generally, books and records need to be kept for a minimum of 6 years. Here’s a more thorough summary of how long to keep records in Canada.
- You must keep your books and records in an electronically readable format – even if you mainly do your books on paper.
- A CRA auditor will contact you by mail or phone, or both, to start the audit process and tell you the date, time, and location of the audit. Normally, the audit will be performed either at your office (or your accountant’s). In some cases, you may be required to go to the CRA’s office for the audit.
- Wherever an audit takes place, the auditor may need to make copies of your electronic records or borrow some of your documents. The auditor will give you a detailed receipt for any borrowed documents and return them as soon as possible.
- For an audit, you must supply all your records (both paper and electronic) and provide complete and timely explanations to the auditor’s questions.
- If you use a tax professional, you are still responsible for the information that goes to the CRA.
- At the end of the audit, one of three things will happen:
- No adjustments will be made to your previous assessment
- an adjustment resulting in less tax owing and you will be entitled to a refund
- an adjustment resulting in more tax owing and you will have to pay the balance owing. If this is your outcome, you can find out more about paying your balance here.
What are my rights during an audit?
Don’t worry, although an audit may seem overwhelming, you do have benefits. There is actually a Taxpayer Bill of Rights in Canada to ensure that the CRA serves you with a high degree of accuracy, professionalism, courtesy and fairness. Here are a few highlights:
- You are required only to pay what is required by law
- You have a right to privacy and confidentiality
- You get a formal review – and an appeal, if needed
- You have the right, unless otherwise provided by law, not to pay income tax amounts in dispute before you have had an impartial review
- You have the right to relief from penalties and interest under tax legislation because of extraordinary circumstances
See the full list of Taxpayer Rights here.
- Although audits aren’t fun, CRA auditors want to help you, as quickly and fairly as possible.
- Always remember, if you are audited and you don’t agree with a reassessment, you have the right to appeal it.
- One way to ensure that your audit goes as smoothly and quickly as possible is to have an experienced bookkeeper on your side. Your files will be flawless and impeccably organized!
If you receive phone calls recently from the “CRA” demanding you call back or “face legal consequences”. These are almost certainly fraudulent. If you have any concerns about your tax status, contact the CRA immediately.