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Tax Audit


While running a business, the last thing you have to cope with is a CRA tax audit. A tax Vaughan Accountant expert works very hard while representing you. You will have to complete the task yourself up until you make the call.

What takes place in the CRA Tax Audit?

When the Canada Revenue Agency (CRA) conducts a tax audit, it examines the books and records of the taxpayers to make sure whether they are paying their taxes, following the law and obtaining appropriate benefits. As you might understand, everyone participating in this process may feel it to be very hard.

In Canada, most taxpayers file their taxes according to CRA. Anyone can undergo a CRA tax audit. The CRA selects haphazardly for an audit that feels quite out of the blue.

In this article, we’ll let you know what to do during a CRA tax audit and what to expect.

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How many years can CRA go back in an audit?

Generally, an audit looks at 3 to 4 years of records. If there is no suspicion of gross negligence or fraud, in that instance, the CRA will go back as far as is necessary to conduct an audit. However, it is the CRA’s responsibility to demonstrate willful misconduct or fraud.

The CRA is free to conduct an audit at any time as long as they can demonstrate that they have a good faith suspicion that the taxpayer is filing a false or fraudulent tax return.

What Triggers a CRA Tax Audit?

A CRA auditor (together with computer software) evaluates your income tax return after you file it. The CRA randomly examines tax returns, but certain factors may cause auditors to examine your taxes more closely.

The following are scenarios that make you more likely to be audited: they are listed below.

Unjustified Cost Claims

An excessive number of expenses is a surefire way to attract the attention of a CRA auditor. So be very careful while spending your resources, and also record and clarify them, especially when compared to the income received or the costs of other businesses with a similar business model. For example, if you claimed $15,000 in transport expenses along with $75,000 in sales, CRA will find you and will examine your record to verify the accuracy to ensure no wrongdoing.

Rounded Figures

CRA considers the exact amount up to a cent. If you round your figures, it leads to uncertainty in your record book. Plus, CRA can also comprehend that you don’t have receipts for your expenses. So, make the habit of recording precise amounts.

Lack of T-Slips

Many taxpayers fail to attach their T-slips to their tax return files, which alerts CRA tax auditors to apply penalties to you. You will be charged a 10% penalty the first time, and a 20% penalty the second time.

Working in Specific Sectors

There's a good chance of an audit if you work in an industry that relies on the "cash economy," such as:
  • Retail
  • Construction
  • Restaurants
The CRA is more vigilant in audits because these sectors are more vulnerable to tax evasion.

Self-employed or Independent Contractor

If you are self-employed, a business owner, or work independently, you can also be audited. The CRA carries out these evaluations to verify your status as an independent contractor and the accuracy of your claimed income because some employees might try to find unethical loopholes.

Additional Salaries for Family People

If your wife or children also work in the family business and you pay them, then there may be a chance for an audit if you pay overpayment for their services and you don’t record it.

How CRA Auditors Audit You

If CRA auditors select you for an audit, they will contact you by phone. CRA will also send you a detailed letter about the process.

If you want to verify that it’s a CRA auditor calling you, get help with a personal tax audit, or stay calm until you receive a confirmation letter for a tax audit. You can also call the agency directly through the CRA’s hotline. The CRA audit tax helps to ensure a smooth tax process for everyone. So, give access to your records and books to the auditor.

The CRA auditor can also visit your business office or ask for documents to complete the audit. Ensure your availability whenever the auditor would like to visit or inquire about something during an audit.

During your audit, the auditor may want to look at the following documents:

  • Business records such as ledgers, journals, receipts, invoices, contracts, and bank statements.
  • Personal records of an owner, such as personal accounts, bank statements, credit card statements, and mortgage documents.
  • Personal or professional files of organizations or individuals associated with the business owner(s) (for example, corporations, trusts, spouses, family members, or partnerships)

Moreover, the CRA can also speak with your bookkeeper, personal accountant, corporate tax accountant, or employees about the reported tax returns and books.

The auditor will validate your reported business income indirectly through other references or alternative methods. Generally, CRA uses the following methods:

  • Your recorded income does not match your living expenses.
  • You combined the use of your personal and company bank accounts.
  • The industry in which your company operates carries a high risk of unreported income.
  • Either a small group or a single individual handles the majority of the accounting required.
  • Your reported business income is lower when compared to similar businesses in the same industry.

This verification technique goes beyond your records and books. It consists of a complete assessment of your way of living using accounting records and other useful information such as vehicle registration and land title information.

The CRA also verifies the financial records of your family members or contributing household members when it needs to. This shows a detailed financial picture of your house.

Tax Accountant Vaughan

How long does a CRA tax audit take?

The time taken by the CRA tax auditor depends on your business records and data. A delay may happen if your provided documents, records, and statements are ambiguous.

So, take help with personal tax audits in Vaughan to seek alternate techniques to verify the amount stated on tax returns.

Delay may also come from the tax auditor when he is absent due to personal reasons or consulting on other audits.

After a CRA Tax Audit

Once auditors complete their investigation of your business, they will provide you with a tax audit assessment summary. If CRA doesn’t demand any further changes, the audit ends, and you don’t need to do more.

If CRA wants a few changes to tax returns, you have to make that change within 30 days. After that, you have the right to agree to or dispute the CRA’s auditor investigations.

Why Choose Us?

As part of our tax services, we specialize in assisting you in reducing the possibility of an audit by the Canada Revenue Agency. Reduce your tax obligation and evaluate risk by consulting with our years of experience in audits. Our services also include speaking with you for your benefit during any CRA reviews, and we will provide you with complete cooperation, consistency, and exposure to ensure that your case is fairly evaluated. We conduct audits under our direction and at our facility so that, if the auditor requires any information, we can provide it promptly and accurately.

Our goal is to help people in the best way possible. this is a basic principle in every case and cause for success. contact us today for a free consultation. 

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