How to avoid the Crash and Burn
You are officially caught on CRA’s radar…
- CRA is auditing or reviewing your information
- Your filings have been arbitrarily re-assessed
- The collections department is harassing you
No matter what the reason, dealing with the Canada Revenue Agency (CRA) can be extremely stressful.
Here are some tips to help ease that CRA audit pain.
What are your responsibilities?
By law, you have to keep adequate books and records to determine your tax obligations and your entitlements. Generally, books and records must be kept for a minimum of six years.
If you use a computer for your accounting records, you must keep your books and records in an electronically readable format, even if you also keep them on paper. Using the services of a tax professional does not relieve you of your responsibilities.
For an audit, you must make available to the auditor all of your relevant records (both paper and electronic) and supporting documents, and provide complete and timely explanations to the auditor’s questions. Failure to provide required books and records is an offence under the law.
1. Do NOT Ignore them.
The problem will not go away. Keep the lines of communication open. Return phone calls even if the only thing you have to say is “I’m working on it”.
2. Deal with any requests or incorrect assessments ASAP as they are often very time-sensitive.
If you ignore requests and CRA re-assesses you, it can take several months to correct AND if you ignore them long enough, the problem may become unfixable.
CRA Audit Client Examples
a. I had a trucking company referred to me. He was behind on GST filings and CRA Factually assessed him. The client had opted to bury his head in the sand. The returns became statute-barred and CRA refused to reassess them. I luckily found a reasonable auditor to re-open the files and managed to save my (very happy) client $80,000.
CRA Factually assessed – If you don’t file your GST file on time, the CRA can arbitrarily access you and send you a bill.
b. In another case, (again, before he was my client) an automotive mechanic shop company underwent a payroll audit. The business owner and (non-CPA) accountant at the time didn’t respond properly to queries. CRA incorrectly assessed over $100,000 owing in source deductions. They were referred to me. It took over a year of fighting with CRA to have them amend their assessment to the correct balance owing of only $4,000. In the meantime, their corporate bank accounts were seized. Again, if it would have been dealt with properly in the first place, it would have never been an issue.
3. Enlist your Chartered Professional Accountant in dealing with CRA.
Generally, I’m the one who responds to my client’s CRA queries. If the client is preparing the response, I review it before it is sent in. In the case of an on-site audit, I prefer to gather the records and host the auditor in my own boardroom. This eliminates any intimidation factor.
Quite often, the accountant will know exactly what the auditor is looking for and be able to provide the facts and only the facts to get the issue resolved as efficiently as possible. The last thing you want is a simple review request for payroll to turn into a GST audit, personal benefit assessments, disallowed expenses… the list goes on.
Sometimes just a slight change in terminology can drastically change the audit outcome.
I had a trucking company client go through a review to determine whether a subcontracted driver was an employee. If the contractor was determined to be an employee, my client would have been liable for over $20K in payroll taxes. My client kept referring to the contractor in employee terms even though the nature of the arrangement was leaning toward the contractor. Had I not been able to pre-screen and rephrase his responses to the appropriate terminology, the client would have ended up with a nasty bill.
4. CRA isn’t always right.
I know…it’s shocking indeed. You want someone in your corner who understands taxes to be able to argue on your behalf.
I had a client undergo a GST audit. The auditor (who appeared somewhat inexperienced) proposed an assessment of over $20,000 owing. Upon review of his supporting paperwork, I successfully argued the GST owing down to less than $2,000.
Do you need help in dealing with a CRA issue? We’re happy to help!
Angela Richardson is a Chartered Professional Accountant (CPA, CGA) with more than 17 years experience working in public practice with small to medium sized businesses. While financial statements and tax returns are part of the occupation, consulting and assisting clients to achieve their entrepreneurial dreams is her true passion.