Personal Investor: Flagged for a tax audit? Don't panic
With the 2018 tax filing deadline behind us, many Canadians can look forward to a refund. A few of them can look forward to an audit.
There’s always a chance your return will be flagged by the Canada Revenue Agency (CRA) for a closer look. If that happens, don’t panic just yet. The CRA conducts spot checks on tax returns either through a software program that detects irregularities or humans doing simple math errors. Most are resolved without penalty.
The CRA will usually tell you you’re under audit by letter or your personal online account, which should provide specifics and a possible request further documentation.
If you paid a third party to do your taxes, they should be able to help – but keep in mind the return is only as good as the information you provided.
The worst thing you can do is ignore it. TurboTax suggests a prompt response can work in your favour and tells us what to expect from an audit.
The audit process
- Based on receipts and records you submit, an audit may take place at the offices of the CRA or it may take place on your premises.
- In an audit focused on a specific area, the auditor makes sure that the totals you have declared and claimed are backed up by your records, and that the records reflect individual transactions that he can verify. For a more comprehensive audit, the auditor wants to be able to track income to where you have spent the money, saved it or invested it.
- You may have to obtain additional documentation from the bank and from other people you dealt with if your records are incomplete.
- If everything is in order, no adjustment to your taxes is needed. If you made a mistake in your documentation or calculations, there may be a balance due or a credit.
The results of the audit
- The auditor will usually advise you of the findings and confirm them in a letter.
- You have at least 30 days to respond and accept or question the findings.
- You still have to keep your records and receipts for a minimum of six years after submitting your tax return, and it is a good idea to keep the records of the audit as well.