What is a Tax Audit?
During a business tax audit, the Canada Revenue Agency will examine the books and records of businesses or self-employed persons to make sure the business has fulfilled its tax obligations including income tax, employee benefits, payroll remittances, and GST/HST.
A trust examination is a type of business audit that seeks to audit only the GST/HST or payroll deductions and remittances of your corporation.
Personal audits can include the audit of your previously claimed principal residence exemption for a property that you recently sold.
An audit can also include a determination of whether the income you earned from the sale of your properties should be taxed as business income or capital gains.
More often these days, the CRA is conducting pre-assessment reviews of the deductions claimed on individual’s personal tax returns. A Pre-Assessment Review is akin to a mini audit, where the CRA requests receipts and submissions to substantiate what the individual has claimed.
How many years back can the CRA go in an audit?
A typical audit will look at records going back 3-4 years, unless there is a suspicion of fraud or gross negligence, in which case the CRA will go back as far as it needs to carry out an audit. The onus, however, is on the CRA to prove gross negligence or fraud. There is no statute of limitations on the CRA’s ability to audit, as long as they can justify the audit on the basis of having reason to believe that the taxpayer is lying or cheating on their tax return.
What Happens When You are Audited?
You will first receive a notice from the CRA of their intention to audit. The notice will usually outline the preliminary information that they require from you. The start of an audit is the best time to obtain legal representation as you want strong legal counsel to prepare explanations to support the manner in which you have filed your taxes.
The tax lawyers at Kalfa Law will communicate with the auditors or trust examiners on your behalf and will prepare the necessary legal submissions required to resolve the tax issues relating to your tax audit. Our tax lawyers prepare comprehensive submissions setting out extensive legal arguments in support of our position.
Why you Need a Tax Lawyer
The CRA’s methods and tactics can be tricky. They may ask you to sign documents waiving your rights or may tell you the law requires certain conditions, where in fact it does not. An audit will result in a Notice of Reassessment which outlines how much you owe in taxes. Don’t go through a tax audit unrepresented by a skilled tax lawyer. You will likely pay more than you have to.
Under CRA Audit? We’re here to help™.