There has been a notable increase in both the number and scope of Canada Revenue Agency (CRA) audits. This uptick, particularly sharp over the last six months, is likely fueled by the significant resources allocated to the CRA in recent federal budgets aimed at closing the tax gap and enhancing compliance measures. For businesses and individuals alike, understanding the audit process and knowing how to respond can make a critical difference. Being prepared is essential to navigating these audits successfully.
1. Stay Calm and Compliant 
While audits can feel invasive, maintaining a professional and cooperative attitude helps to facilitate a smoother process. CRA auditors are simply fulfilling their mandate, and our experience has been that positive interactions can build goodwill.
2. Review the Notice of Audit Thoroughly 
When you receive an audit notice, carefully review it to understand the scope. Audits can be both general and focused on specific items, and understanding what’s being examined will help you prepare more effectively.
Often, the CRA provides a "laundry list" of items that they request to commence the audit. Many of these lists are produced from generic templates and, upon a closer review, some of the items may not be applicable to the taxpayer's specific circumstances. Professional advisors at Crowe Soberman have had success in discussing items on the initial request list with the CRA auditor, which has resulted in their removal from the request.
3. Organize Your Records 
The CRA may ask for trial balances, general ledgers, receipts, invoices, bank statements, or other documentation supporting income, as well as expenses and certain balances. A well-organized package of documents submitted to the CRA reflects professionalism and makes the audit process more efficient.
4. Contact your Advisor 
Engaging our professionals early in the audit process is crucial. They will help you understand the implications, ensure you provide accurate information, and communicate with the CRA on your behalf.
5. Understand Your Rights 
As a taxpayer, you have rights during the audit process, including the right to be treated fairly, to privacy, and clear communication. If you believe the audit is unfair, you have the option to escalate the issue within the CRA.
6. Respond Promptly to CRA Request 
Timely responses are critical. Delays can prolong the audit or potentially raise additional questions. Ensure that any requested documents are provided within the specified deadlines. If you do require additional time to collect your documents, the CRA is often understanding and will provide reasonable extensions for you to produce the information they have requested.
7. Be Transparent and Factual 
It’s essential to provide complete and accurate information. Misrepresentations or omissions may increase the scope of the audit or lead to penalties. It can also impair the taxpayer's credibility when addressing and challenging the CRA in connection with the issues under audit.
8. Keep Detailed Notes 
Document all interactions with the CRA, including dates, names, and details of conversations. These notes may be useful if questions arise or if you need to refer back to earlier discussions.
9. Prepare for Potential Adjustments 
After reviewing your records, the CRA may propose adjustments to your tax returns. Crowe Soberman will work with you to review these adjustments carefully. If they are justified, be prepared to accept and address them; if not, your accountant will explain your options for contesting them.
The CRA will provide the taxpayer with time to address any proposed changes before issuing a Notice of Reassessment. It is more efficient to deal with the CRA on a proposed adjustment than to have to prepare a Notice of Objection or challenge the issue at the Tax Court.
10. Consider Your Appeal Rights 
If you disagree with the CRA’s final decision, you have the right to appeal. Taxpayers and their representatives can file a Notice of Objection and/or start the Tax Court process.
