Kelowna: 778-741-0214 Penticton: 778-476-2600

CRA Audit Representation

Clients commonly inquire about how likely a CRA audit is to occur and why does the CRA do audits in the first place? There are two main reasons why CRA audits people and businesses. Random selection is the first reason, which relies on a statistical tool based on probability. Secondly, there is a target selection process which is calculated on various criteria.  

CRA Audits take energy, time and can cause stress. During this process, the CRA meticulously examines your records and books to discover if you have fulfilled your tax obligations accurately. They are checking to ensure the tax laws have been properly followed and if you have received the refunds and benefits that you are entitled to.  

For many years, Kochhar & Co. Chartered Professional Accountant has successfully been representing clients and offering Tax Audit Support across Canada. It is essential to pick a reliable and experienced tax firm for your CRA representation. Any wrong disclosure on your audit information can be extremely detrimental, causing significant financial and business impacts. Based on risk assessment of tax return error frequency or evidence of non-compliance with your tax obligations, the CRA picks their files to undergo audits.  

Your records will be scrutinized during a CRA Business Audit, including documents and information. Credit history, filed tax returns, business records including receipts, ledgers, invoices, bank statements and rental records and property details. Your personal records including credit card statements, mortgage documents and bank statements will be reviewed. Business and personal records of other people not being audited including common-law partner, a spouse, family members, partnerships, corporations, or a trust including trustee, beneficiary and settlor may also be reviewed.  

Once the records have been examined by the auditor, a corrected assessment will be issued if you don’t owe any taxes. In some instances, you will be entitled to a refund or you may need to pay taxes. There is thirty days for you to agree or disagree with the auditors’ proposal. In the event of any disagreement, it is essential to contact CRA and provide any documentation to support why you disagree.  

We offer Tax Audit Support to help you with the following:

· Establishing a hands-on strategy to manage the tax audit process and communicate with CRA.

· Negotiate with CRA to guarantee a transparent and fair process.

· Communicate to ensure any prosecutions or penalties are minimized to an acceptable amount.

· Review the representation and submission before the CRA.

Correct documentation and documented evidence are the proper methods to communicate with the CRA. Hiring a CPA Firm during the tax audit process can help you address any challenges or complications. In the event you discover previous tax errors have been made that need to be amended, we can help. We satisfy the CRA Audit by providing accuracy and essential source documentation papers with your records.

Don’t hesitate to contact us if you have received an information request or any notice from the CRA. We have been helping clients with audit procedures for many years. We are dedicated to successfully representing our clients every step of the way for audit support and CRA representation.  

What May Trigger a CRA Audit?

1. Significant changes in expenses or income will trigger the CRA to investigate.

2. While it is common for businesses to experience losses when first starting out, continuous business losses are a red flag. If financial losses are reported continuously, the question of how and why the taxpayer is continuing to operate with continual losses comes up. You will receive a call or a letter from the CRA in this circumstance.  

3. Relying on industry standards as your expenses benchmark will potentially backfire. For example, if you are in real estate, it is unreasonable to incur travel expenses ten times higher than your industry average unless you are a wildly successful agent entertaining clients. Expenses that are drastically higher than your industry peers will raise suspicion.  

4. Industry codes…you are required to report your industry code if you are operating through a corporation or are self-employed. This delivers insight to the CRA. The CRA has tools depending on your industry that give insight into your profit margin range. Under-reporting Net Income can be visible via your businesses’ average profit margin ratio. Being honest can save yourself and your future. 

5. Huge donations that don’t add up because you make too little. Being generous is great; however, we can only share a portion of what we earn. If it is equal to or greater than a set amount your donations will be under scrutiny. The CRA will question how you can stay in business if you end up donating practically everything you make. Donations need to be consistent with how much revenue you are delivering. 

6. Underreporting T-Slips: If you have any kind of T slip including T4A, T4(OAS), T4, T4(p), T5, etc. the CRA needs a copy of these slips. If your tax return is missing any of the T-Slips that the CRA has on their side, this will trigger an audit. This indicates an incorrect tax return or sometimes, the employer has issued a wrong slip accidentally. 

7. Due from Shareholder: Many small business owners are not familiar with this. If the corporation advances a shareholder loan, it needs to be repaid within one year. If it is sitting on the books for longer than a year or is part of numerous shareholder loans initiating from the previous, the CRA will choose to investigate. They may choose to add the loan into the shareholder’s income at a significantly high rate. 

8. Writing Off Home Office Expenses: It is possible to claim certain write-offs for your personal residence and business usage. If you are making unreasonable claims and using personal expenditures as write-offs, the CRA will investigate. 

9. Tax Return vs. GST/HST Return: If sales reported on your GST/HST Return are different from the numbers stated on your T1 or T2 Returns, you will be up for an audit. Accuracy needs to be maintained when corroborating information in both tax filings to avoid discrepancies and having the CRA question your returns.