What is a tax audit?
According to the Canada Revenue Agency (CRA), a tax audit is the “examination of taxpayers’ books and records to determine accurately the taxes, interest and penalties payable under the law.”
In other words, a tax audit is the government’s way of double checking the tax filings made by Canadians to make sure the taxes were reported accurately and honestly. The CRA can audit GST/HST tax returns, income tax returns, and payroll documentation.
What’s the difference between a request for information vs. an audit?
An information request is typically harmless. Here the CRA is after proof of a deduction or credit claimed. Common requests are receipts for daycare, charitable donations and medical expenses. An audit is different. It’s usually because the CRA has found something unusual.
Who gets audited most?
The CRA uses computer-generated algorithms to come up with norms within groups. If your claims are vastly different, you may get a call. A huge year-over-year change in your claims for deductions or credits will raise flags. Sometimes it audits a sample within a group just to keep them honest. In our firm’s experience, audits have included construction contractors, car dealers, jewelers and pharmacists. Other groups who face scrutiny are hospitality industry workers including waiters, waitresses and bartenders.
What happens if I get caught?
What the CRA really wants is your money, but jail is the ultimate penalty. If it’s a mistake and you must pay a reassessed amount and a penalty. If you cheated, it can get expensive. If the CRA determines you deliberately made a false statement or left something out, you could be penalized 50% of the tax owing.
Here are some tips to help stay out of trouble:
* File on time
* Don’t make things up: If you don’t have receipts do not make the claim.
* Keep proper records: Be able to back up your claims.
* Respond promptly: If you disregard CRA queries they will rule against you by default.
* Get help.
If you are facing an Audit, Ravinder Makkars’ professional advice will save you time, anxiety, and may help reduce the assessment if you are entitled to. Our specialties are Audit of Payroll, HST , WSIB, and Tax Audits .
For further information contact us at: 905-791-6666 or e-mail: makkarcpa@hotmail.com