Barrett Tax Law answers some of the most commonly asked CRA tax audit questions. For more information or to schedule a free consultation with a tax lawyer for your Revenue Canada tax problem, call toll-free 1-877-8-TAX-TAX or fill out the online form located to the right.
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What are my chances of being audited by the Canada Revenue Agency?
The CRA uses several methods to select who they will target including randomly selecting taxpayers; however, they do try to be as efficient as possible and will select those they think will most likely to be stretching the truth when it comes to filing their tax returns. Thus, the Canada Revenue Agency will focus most of their efforts on businesses and the self-employed, since tax returns for employed individuals are more straightforward and most likely to be accurate at the time of filing.
According to the CRA website, the top three industries most likely to be participating in the underground economy in the year 2009 were the construction sector, the retail trade sector and the accommodation and food services sector. Other industries under Revenue Canada’s radar are the real estate sector (including real estate investors), self-employed individuals in the oil and gas industry, home-based businesses, and trained professionals offering additional private services to the public, like police officers working at private events and nurses offering in-home care.
In addition, the Canada Revenue Agency for any given year will select certain industries to target and will look at those taxpayers that are outside the norm for that particular industry. For example, if in the year 2012 the CRA is looking closely at realtors and it is seen that most real estate agents spent about 5% of their income on advertising but one realtor spent 30% on advertising, then that would raise a red flag and thus increase that real estate agent’s chance of being audited.
Call 1-877-8-TAX-TAX to schedule a free consultation with a tax lawyer for your Revenue Canada tax problem
What happens if I do get audited?
Since CRA tax auditors are trained and instructed to find error with whatever they can find that would result in an increase in the tax bill, tax audits will most likely result in a tax reassessment issued by the Canada Revenue Agency whereby the taxpayer will be responsible for a larger tax bill in addition to interest and penalty charges. According to the Canada Revenue Agency website, during the 2011 – 2012 period, Revenue Canada examined 171,832 “high risk” files and consequently reassessed or modified 62% of those files. So, if you are being audited, keep in mind that it is likely you will end up with a larger tax bill than originally thought. Needless to say, hiring an experienced tax lawyer trained to refute the auditor’s claims will help your chances of either maintaining the original tax assessment or, at the very least, lowering the original tax reassessment issued by Revenue Canada.
Call 1-877-8-TAX-TAX to schedule a free consultation with a tax lawyer for your Revenue Canada tax problem
Can a Revenue Canada tax audit lead to criminal prosecution?
Most audits do not lead to criminal prosecution. Only a small percentage of those audited will be sent to the CRA’s investigation team, which may then lead to criminal charges and the potential for jail time, in which case, good legal defence by a tax lawyer (as opposed to an accountant or tax consultant) is a must.
During the 2008 – 2009 tax year, for example, the Canada Revenue Agency performed over 370,360 audit and review actions. In that same time period, 1,439 international tax audits were conducted in addition to 34,111 tax shelter audits. Out of all of these investigations, the Public Prosecution Service of Canada received 164 cases for criminal prosecution and the Ministere de la Justice du Quebec received 58 GST audits to prosecute.
Call 1-877-8-TAX-TAX to schedule a free consultation with a tax lawyer for your Revenue Canada tax problem
Do I have to cooperate with a CRA tax audit?
Taxpayers being audited are legally obligated to cooperate with the Revenue Canada auditor and can face possible criminal charges for refusing to cooperate with the auditor according to section 238 of the Income Tax Act. In addition, you are legally required to keep adequate financial records and make it available to CRA auditors if it is relevant to their investigation.
Call 1-877-8-TAX-TAX to schedule a free consultation with a tax lawyer for your Revenue Canada tax problem
How far back can the Canada Revenue Agency go in a tax audit?
In general, Revenue Canada can go as far back as four years as of the date of filing; however, exceptions can be made if the CRA determines that a fraud may have occurred or the CRA auditor files a waiver prior to the upcoming deadline explaining the particular circumstances as to why an exception should be made. In this case, the expert legal advice of a tax lawyer is crucial to establish whether or not the tax audit is legal in the first place.
Call 1-877-8-TAX-TAX to schedule a free consultation with a tax lawyer for your Revenue Canada tax problem
Why am I being audited?
According to Revenue Canada, tax audits are a way for the Canadian government to “spot check” taxpayers to ensure everyone is accurately paying their taxes.
Call 1-877-8-TAX-TAX to schedule a free consultation with a tax lawyer for your Revenue Canada tax problem
Is there anything I can do to avoid a CRA audit?
YES! There are definitely tax strategies you can employ to help reduce the chances of being audited by the Canada Revenue Agency.
– File on time. Nothing places a red flag faster than a late tax return, so get your tax return in by the deadline. Likewise, filing too early and thus filing with missing financial information that would have been necessary to file accurately will spark the CRA’s interest in your file.
– Be honest. Revenue Canada has tools to investigate and gather information about your industry. If your numbers don’t fit the typical profile, then chances are greater that you will be audited.
– Be accurate. Any mathematical error that is caught or brought to their attention after the return has been filed will increase the chances of an audit. The use of a tax preparation service or tax software is useful here.
– Be consistent. Major changes in income or expenses or tax deductions from one year to the next will raise suspicion, so do try to be consistent with your declarations.
– Avoid declaring business losses year after year. This isn’t to say that you can’t have a reasonable amount of business losses. However, continuous business losses over a few consecutive years will alert the Canada Revenue Agency.
– Select your partners wisely. Any close association you make with other businesses or individuals who had or currently have problems with the CRA may result in a tax audit for you. This is especially true if a charity to which you have contributed is experiencing tax problems with Revenue Canada. Be wary of charities that offer to provide you with a receipt for an amount that is higher than the actual amount you are contributing. If this charity gets audited, then all of the donors will come under the scrutiny of the Canada Revenue Agency.
Call 1-877-8-TAX-TAX to schedule a free consultation with a tax lawyer for your Revenue Canada tax problem
If I do get audited, is there anything I can do to lessen the potential blow?
YES! There are definitely strategies you can employ to make the auditing process go more smoothly.
– Consult a tax lawyer. The key to being audited without your tax bill doubling is to ensure the audit is conducted fairly – without intimidation and with your rights upheld. This is best achieved with the representation of a tax lawyer, who is trained in Canadian tax law and the CRA’s internal policies and is, unlike other tax professionals, trained to fight for your rights.
– Be nice. True, no one likes being audited, but taking it out on the CRA auditor will get you nowhere.
– Be on guard. It’s one thing to be nice, it’s another to befriend the CRA agent and innocently let your guard down. Avoid getting chatty with the tax auditor and volunteering more information than necessary that can later be used against you. In fact, a good rule of thumb to follow is to simply remain silent unless you are asked a specific question. If you ever have any doubt about answering a specific question or handing over a document that you think can be criminally incriminating, then it is in your best interest to consult a tax lawyer immediately.
– Be organized. Although it may be tempting to dump a box full of financial records onto the lap of the CRA auditor, this will only serve to motivate the tax agent to work harder to find omissions and mistakes in your tax return. However, keeping your records organized will, at the very least, lend credibility to you as a responsible taxpayer.
– Inform yourself. Knowing your rights will help you be better prepared when facing an audit. The Canada Revenue Agency publishes the Taxpayer’s Bill of Rights, and although some of these rights are not technically legal rights, it is still useful to know the principles behind which the CRA hopes to conduct their tax audits.
– Do consider appealing the results of the tax audit if you feel the tax reassessment is incorrect or the audit was conducted unfairly.
Click here to visit the CRA Tax Audit FAQ section of the Barrett Tax Law website for more information or call 1-877-8-TAX-TAX to schedule a free consultation with a tax lawyer for your CRA tax problem.
