The Canada Revenue Agency (CRA) may take a closer look at your tax return for different reasons. Sometimes, it’s a random chance that you get selected for an audit. Other times, it could be because of your tax history or certain deductions you claimed.
You must accurately report all your income when filling out your return. If you work for yourself as an independent contractor or something similar, you must keep your paperwork in order. Hold on to receipts and records of your earnings and expenses to quickly provide that information to the CRA if they ever ask.
If you’ve been selected for a tax assessment, don’t worry. This guide will help you navigate the process seamlessly.
What triggers the audit?
So, what is a CRA audit? It’s an assessment when the CRA closely examines your taxes to ensure you paid the right amount. The auditor is looking for mistakes that could mean you owe more taxes. And you’re legally required to cooperate with them during the audit.
Contact a lawyer as soon as you can to help you deal with the audit process. These tax audits can get complicated, so you want someone experienced to assist and advise you.
The Canada Revenue Agency (CRA) selects files for audit through a risk assessment process. This assessment considers various factors, including the likelihood or frequency of errors in tax returns and indications of non-compliance with tax obligations.
Additionally, the CRA review information it has on file for the taxpayer, compares it to similar files, and considers data from other audits or investigations.
How can you seamlessly pass the audit?
Refrain from stressing too much about audits. You should be good if you’re following tax rules and regulations. If you need more help, here are tips that can help make the process smoother.
Avoid audit triggers
Many taxpayers are selected randomly for a CRA audit, while others are targeted due to information they provide or fail to indicate on their tax returns. It’s better if you can avoid the following audit triggers:
- Claiming business expenses for personal use
- Foreign income and assets
- Home office expenses
- Inconsistent information
- Large business losses
- Non-compliance with tax law
- Significant fluctuations or high expenses
- Unreported income
- Unusual tax deductions or credits
Keep accurate tax records
Having accurate and detailed records can be a lifesaver in the event of a CRA audit. Not only does good bookkeeping reduce the likelihood of an audit, but it also streamlines the process if one does occur.
It’s crucial to save all personal bank, investment, retirement account, and credit card statements and your business records. This proactive step saves time and hassle if the CRA requests them, as scrambling to gather this information later would be a nightmare.
Additionally, documenting any transfers between accounts is wise. Whether moving money from one account to another or making electronic funds transfer, having proper documentation prevents misunderstandings during an audit.
Without paperwork, the CRA might mistake a cash deposit as unreported income rather than a simple transfer. Keeping receipts for electronic transfers or deposited checks provides a clear paper trail in case of an audit.
In essence, maintaining organized financial records ensures peace of mind and facilitates a smoother audit process if it ever occurs. It’s a proactive approach that can help you rest easier at night, knowing you’re prepared for any eventuality.
Appeal the CRA decision
Don’t panic if the CRA audits you and decides you owe more taxes. You’ve got options to contest their decision.
After your audit, the CRA will send you a draft of what they think you got wrong on your taxes within 30 days. They do this before officially recomputing your taxes and adding up what you owe plus any penalties or interest.
Even if you disagree with their assessment, don’t lose hope. You can always appeal through the CRA’s standard process for disputing an evaluation. Don’t just accept what they say speak up if you think they’ve got it wrong.
Learn How To Justify Your Tax Payments
When you can’t stop the CRA from auditing your business, you can still turn the situation in your favour. Aside from paying your taxes diligently, keep records of your payments and other documents to prove their correctness. And when they judge against you, learn to justify.
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