CRA Business Audit

Business audits are not different from personal or sole proprietorship audits. The auditor examines one or more returns and tries to identify areas where additional taxes can be assessed.  The auditor is not there to see if the taxpayer was accurate in their filings – they are there to make reassessments.  As many as they can.  In fact the auditor’s performance evaluation is predicated on the volume of their reassessments.

In terms of their subject matter there are different types of business audits: HST, payroll and corporate tax – and there are different types of audits in terms of the way in which they are performed – some basic audits are done by correspondence, and other more in-depth audits are done in person.

In the past CRA performed complete general audits, looking at both income tax and GST/ HST. The CRA now performs specialized audits where either income tax or HST or payroll.

Since HST and source deductions are “trust” amounts which the taxpayer holds in trust for the Minister, the CRA takes them more seriously than business or personal income taxes.

 

Personal (Sole Proprietorship)

In this type of an audit, the auditor is typically going to look all general books and records including receipts, invoices, bank statements, auto logs, general journals, cancelled cheques, and anything else that they require in order to determine how much tax they think a business should pay.

 

Corporate Tax Audit

Corporate tax audits involve looking at the same types of documents that are looked at in the course of a sole proprietorship’s audit, plus they uniquely involve the review of certain documents not typically looked at in other audits, including:

  • Financial statements
  • General ledger
  • Corporate documents, including minute books and incorporation documents
  • Documents identifying related parties including parent, subsidiary, and affiliated corporations in addition to major shareholders and directors
  • Legal agreements and contracts with partners, suppliers, clients, and related parties
  • Dividend statements
  • Loan balances

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