The Do's and Dont's of Navigating a CRA audit

Receiving a notice of audit or review from the Canada Revenue Agency (CRA) can be stressful, but by avoiding the Red Flags that can trigger and audit and knowing the do's and don'ts when dealing with the process can help you navigate thruogh the event smoothly. Here are some guidelines:

Red Flags That Can Trigger a CRA Audit 

• When you know how the CRA scrutinizes the tax files, you can address the issues proactively instead of the agency pointing it out with penalties and fines. Ultimately, it is better to play safe. 
  • Failing To Report All Income
  • Having Huge Cash Transactions
  • Rounding Off Transaction Amount
  • History Of Investigation 
  • Overpaying Spouses and Children
  • Excessive Charity
  • Several Years of Losses
• A complete and honest tax filing is the best way to avoid an audit.

Do's

Read the Notice Carefully

• Understand the type of audit or review, the information requested, and the deadline for submission.

Organize Your Records

• Gather all relevant financial documents, receipts, and records related to the period under review.
• Ensure your records are complete and well-organized.

• Brush up on the contents of your tax returns. Be ready to explain the entries if asked. Understanding every piece of data on your return will help you answer the auditor’s questions with confidence.

Respond Promptly

• Acknowledge receipt of the notice as soon as possible and confirm your intention to cooperate.
• Meet the deadlines specified in the notice.

Be Courteous and Respectful

• No matter how stressful the situation is, remember that auditors are just doing their job. Being polite and cooperative can create a more positive and efficient audit environment.

Seek Professional Help

• Consider consulting with a tax professional, accountant, or tax lawyer, especially if the audit is complex.
• They can help you understand the CRA’s request, prepare the necessary documents, and represent you during the audit.

Be Honest and Transparent

• Provide accurate and complete information. Misrepresentation or withholding information can lead to penalties or further investigation.

Maintain Communication

• Keep open lines of communication with the CRA. If you need more time to gather documents, request an extension.
• Document all interactions with the CRA for your records.

Review Your Tax Returns

• Before submitting any documents, review your tax returns to understand what might have triggered the audit.
• Correct any errors or omissions and be prepared to explain discrepancies.

Stay Calm

• Keep a professional and courteous demeanor throughout the process. The audit is a standard procedure, not necessarily an accusation of wrongdoing.

Don’ts

Don’t Ignore the Notice

• Ignoring an audit notice can result in penalties, reassessments, or legal action. Always respond within the given timeframe.

Don’t Provide Unrequested Information

• Only provide what the CRA asks for. Volunteering extra information might open up new areas of scrutiny.

Don’t Alter or Destroy Documents

• Never alter, backdate, or destroy documents that the CRA might request. This is illegal and can lead to severe penalties.

Don’t Panic

• Stay calm and composed. Panicking can lead to hasty decisions or mistakes in your responses.

Don’t Conceal Information

• Concealing income, expenses, or other financial details can lead to serious legal consequences, including fines or criminal charges.

Don’t Handle It Alone if Unsure

• If you’re uncertain about how to proceed, don’t attempt to handle the audit on your own. Professional assistance can be crucial in ensuring your case is handled correctly.

Don’t Assume It’s a Scam

• While scams do exist, CRA audits are real. If you’re unsure about the authenticity of the notice, contact the CRA directly using official contact information to verify.

Don’t Forget to Follow Up

• After providing the requested information, follow up with the CRA to ensure they have everything they need and to check the status of your audit.

Handle Everything Yourself

• It is prudent to seek professional assistance. Accountants and tax professionals are experienced in dealing with audits and can offer valuable advice and support. They can also help to ensure that your audit goes smoothly and that nothing is missed during the process.

Following these dos and don’ts will help you manage the CRA audit or review process more effectively and minimize potential issues.

To make sure you successfuly navigate your way through an Audit, contact our office as soon as you are notified that you have been selected by the CRA.