When the Auditor Comes Knocking
Say the word ‘audit’ and people instantly become nervous. Relax, it doesn’t have to be this way. Just because you receive an audit notice, do not assume you have done something wrong. The Canada Revenue Agency (CRA) and the Ministry of Finance (MOF) periodically conduct audits on both personal and corporate taxpayers. CRA has up to three years from the mailing date of your notice of assessment to conduct an audit. For a Canadian controlled private corporation, the MOF has 4 years. After this time, the particular year is statute barred unless there is a case of fraud, in which case there is no time limit to the period for audit.
If you receive notice from the government stating you have been selected for audit, it would be wise to contact your professional advisor to discuss the letter. He/she should be able to advise what you need to provide to the government. The CRA’s normal course of action is to allow 30 days to comply with these letters. If you have a problem meeting this deadline, it is prudent to phone them and ask for an extension. These notices should not be ignored and you must comply with their request within the time allowed!
Regardless of whether your records are manual or computerized, the CRA will want to see your documentation. They may request access to your electronic records as well as original source documents. Generally, you must retain books and records for six years before destroying them in case the CRA requests any information to support your filing position.
Without a doubt, the best way to arrive at a positive outcome during your audit is for you to have a good set of accounting records that are backed up with invoices, cash receipts, payroll records, automobile log books and any other source documents that can verify both the sales and expense figures as well as any asset purchases. Without backup invoices to support your accounting records, you will be at the mercy of the auditor.
You should always treat the government auditor in a respectful manner and they should respond in similar fashion. If the CRA asks you any questions, it is advisable to answer them in a brief but straight forward manner. Sometimes the wrong answer is given unknowingly because you do not fully understand the question. You may wish to have your professional advisor present at any session with the government auditor to ensure that the questions are interpreted and answered correctly.
Overall, if you maintain good accounting records, you should not have too many issues to cause you trouble during an audit. Using your professional advisor to deal with the audit will likely help you to arrive at a better outcome than trying to do it yourself unless you have a professional on your staff that has experience in dealing with the CRA. So if you receive an audit notice, feel free to contact your local DJB office for advice.