Buckle up for the upcoming CRA audits!
Canadians have been embracing our new norms together during the past months. Though we recently celebrated with Ministry of Finance a projected federal deficit of which is significantly lower than the government’s earlier forecast, now is also a time when increasing tax revenues has become urgently important than ever!
Overall, Canada Revenue Agency (CRA) has completed 7,700 audit ($1.185 billion dollar increase in revenue) for small and medium size enterprises. Over the period between 2015 and 2019, CRA auditors have also reviewed over 41,700 files in Ontario and British Columbia, resulting in over $100 million in assessed penalties.
Over the next five years, the federal government’s 2021 budget will provide an additional $304 million for new and existing audit programs in tackling tax avoidance and evasion. This would likely result in increased audit efforts and enhancement activities! As part of the proposal, it will also give more audit powers to Canada Revenue Agency (CRA) to require taxpayers to respond to questions orally or in writing, including in any form specified by the relevant CRA official.
DOs when CRA comes knocking:
- Take a deep breath
- Review the request letter to understand the scope of the audit and information being requested
- Arrange a meeting with your accountant to understand the CRA’s concerns and risk areas, and why certain information is being requested and its relevance of the audit
DON’Ts when CRA comes knocking:
- Provide privileged information orally or in writing which has not been requested or is unrelated to the transactions being reviewed
- Provide information that is incomplete, unclear or confusing
- Delay in responding or seeking help from your accountant since non-responding will cause a compliance order by CRA
Be cautious with the common red flags:
- Claiming expenses that are personal and unreasonable (e.g. travel, meals & entertainment)
- Improper income splitting in a family business
- Home office expenses (self-employed vs. employee)
- Bitcoin gains
- Claiming losses in many years
- Claiming large tax refunds
How we could help:
As we perform our tax compliance filings for you, we will also better understand your risks and exposures to safeguard you or your company against audits and disputes. In case if any audit arises, we will help you to understand the scope of the audit and the relevance of the information that is requested. We could also provide assistance in responding to CRA to ensure your response is complete and accurate.
This article is intended for general information purposes only and does not constitute professional advice. Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or contact us for further advice.