If you receive notice of an audit from the Canada Revenue Agency (CRA), the first thing you need to do is stay calm. The reason your account was flagged could be something as simple as you significantly increased your charitable donations last year. It could also be merely the fact that you are a new business owner. Instead of conjuring doom and gloom, consider an audit to be and ordinary part of business. You’ve already got all the documentation readily available – it’s what your accountant used to complete your tax file, to begin with, after all.
Benefits of an Audit
Your audit is a learning experience. The CRA representative will point out what you’ve done wrong before it gets out of hand, potentially saving you from severe fines and future audits. And you may not have done anything wrong! It’s as likely you’re being audited because yours is a new business. Tax files are delivered electronically now, without receipts or supporting documents. As a result, sometimes the CRA just wants to go on more than the honour system. You may even learn about additional benefits you’re eligible for that you aren’t taking advantage of.
What to Expect
Expect to receive the notice in writing, allowing you to mop the sweat from your brow in relative privacy. Once the initial shock wears off, the first thing you should do is call your accountant. Your accountant can join your audit team and may liaise with the CRA on your behalf, as well as be present during the in-person portion of your audit. This may cost an additional fee, but it’s a worthwhile service because not only do they speak the lingo, they’ve done this before. An audit should be taken seriously, but no need to lose sleep over it.
The key to getting your audit off to a good start is to respond to the CRA’s request promptly. This is the kind of unexpected situation that you make time for now. Your notice will outline the reason for your audit, what documents you need to prepare, and who to contact to book your appointment. Your appointment will likely take place in your office. This allows the convenience of easy access to all of your documentation in case you forget something or the auditor requests additional documentation. The length of the appointment is unique to the size of the business and the documents required for review. You may be required to produce documents ahead of time, or the auditor may take some with them for additional review after the appointment. Don’t stress, this is all normal!
Once your audit is complete you will receive a letter outlining the final outcome. It will indicate whether you owe additional taxes or are owed a refund and how to proceed. At this point, you still have the opportunity to appeal the decision or to provide additional documentation. You may also talk to your auditor for more information to be sure your bookkeeping and claims are on point going forward.
Audits are a hassle, but they don’t have to be a nightmare. Do it right the first time! Upside Accounting provides bookkeeping and business consulting in addition to tax preparation and audit assistance. To book an appointment contact us.