10 Tips to Help You Survive a Tax Audit

The thought of the Canada Revenue Agency (CRA) combing through your finances can cause anxiety. However, being audited doesn’t necessarily mean you’ve done something wrong. Audits can happen randomly, or they might be triggered by certain red flags. Regardless of the reason, knowing how to handle an audit can make a big difference.

If you’re preparing for a tax audit, here are 10 practical tips to help you navigate the process with confidence.

Understand the Notification

The CRA will send you a letter notifying you of the audit. It’s crucial to read this letter carefully. There are two types of audits: desk audits (conducted remotely) and on-site audits (where the auditor visits your business). The letter will tell you which one is happening and what specific documents you need to provide. Don’t ignore the notice—address it promptly.

Know What’s Being Audited

Before the audit begins, make sure you know which tax years are being reviewed. If you have multiple businesses or income sources, clarify which one is being audited. Prepare the records only for the specified years and avoid submitting documents that are not part of the audit. The better prepared you are, the smoother the process will be.

Organize Your Documents

Gather all the documents the auditor has requested ahead of time. If you’re unsure, consult with an expert, such as an Estate Tax Consultant in Milton, who can help you determine what records are necessary. Having everything organized before the audit begins can save you a lot of time and reduce stress.

Share Documents Securely

The CRA will typically request documents to be uploaded through their “My Business Account” portal. This portal is secure and ensures that your documents are protected. Avoid sending sensitive information via email, as it’s not a secure method for transferring files.

Request an Extension if Needed

Sometimes, audits can occur at the busiest time of year. If this is the case, don’t hesitate to ask for an extension. The CRA will generally grant one if the request is reasonable. It’s better to have more time to get everything in order than to rush through the process.

Maintain Professionalism During an On-Site Audit

If the auditor visits your place of business, treat them with courtesy. Set up a quiet space for them to work and avoid interrupting them while they’re reviewing your documents. Don’t allow staff to engage with the auditor, and make sure only those who are directly involved (like your accountant or bookkeeper) speak to the auditor.

Clarify Any Questions

If the auditor asks you a question you don’t understand, it’s okay to ask for clarification. Don’t try to guess the answer. If needed, have your accountant step in to help answer questions. Clear and accurate responses are key to a smooth audit process.

Review the Findings

Once the audit is complete, ask the auditor if they plan to make any changes to your tax return. If there are no changes, you can consider the audit finished. If changes are proposed, get a detailed explanation for each one. Take time to review the findings with your accountant before making any decisions.

Challenge the Findings if Necessary

If you disagree with the proposed changes, you have the right to challenge them. Work with your accountant to prepare your case, and request a meeting with the auditor or their supervisor if needed. Don’t shy away from defending your position, but be sure to approach it professionally and with supporting evidence.

Appeal the Decision

If you still disagree with the final decision after the audit, you have the option to appeal. You will receive a notice of reassessment from the CRA, and you have 30 days to file a formal notice of objection. It’s important to be proactive in addressing issues during the audit itself, but an appeal is your final option if needed.

Final Thoughts

The key to surviving a tax audit is preparation. By maintaining good records, understanding what’s required, and staying calm throughout the process, you can reduce the stress of an audit. If you’re unsure about the process, consider consulting a Milton Tax Expert to guide you. A professional can help you navigate the complexities of the audit and ensure that your taxes are in order.

By following these tips and being prepared, you’ll be better equipped to handle the audit process without unnecessary worry.