For Canadian businesses, a CRA audit can be intimidating. Audits aren’t always a sign of wrongdoing; they’re often random or triggered by specific events. But being prepared and getting the help from an experienced accountant Ottawa can make all the difference in time and outcome. Here’s what every business should know about CRA audits and how to get through them.
Why Audits Happen
The CRA audits businesses to make sure they’re following tax laws, reporting income correctly and claiming deductions properly. Audits can be triggered by certain events such as frequent or large errors on tax returns, substantial changes in revenue, discrepancies between income and expenses, or industry benchmarks. Some audits are random, others are based on red flags like missing information or unusually high deductions.
Key Point: Knowing that audits can be routine or based on financial inconsistencies helps businesses understand that they’re not always a sign of suspicion. Consult with a qualified accountant Calgary to ensure consistent, accurate and transparent financials to reduce the chances of an audit trigger.
Types of Audits
The CRA does several types of audits, each with different levels of complexity. Here are the most common:
- Desk Audits: These are done remotely by the CRA and often focus on a specific area, like verifying expenses or deductions.
- Field Audits: These are done on-site at the business and involve a full review of financial documents, invoices and other records.
- Comprehensive Audits: These are a full review of all financials and may require multiple meetings with CRA auditors.
Key Point: Knowing what type of audit your business is facing helps you focus your preparation and communicate with the CRA.
Documentation and Organization
When a business is audited, the CRA will ask for specific documents. These may include income records, receipts for deductions, payroll records, bank statements and other financials. The CRA will provide a detailed list of required documents and may ask for explanations on certain transactions.
Key Point: Keeping records organized year-round makes the audit process easier. Accurate and complete documentation can shorten an audit and clarify any questions the CRA may have. For example, store digital copies of receipts, invoices and expense reports in a secure and easily accessible place.
Responding to the CRA
Respond promptly and professionally to all CRA requests. Ignoring or delaying will only increase scrutiny or penalties. If an extension is needed, let the CRA know in advance. Being open and cooperative during the audit process will make it smoother and can even work in your favour.
Key Point: Professionalism, transparency and timely communication shows the CRA that your business is taking the audit seriously and will comply.
CRA Findings
At the end of the audit, the CRA will provide a summary of their findings which may include adjustments to income, deductions or tax liability. If adjustments are recommended, businesses have the right to question or appeal the findings if they disagree. It’s important to understand the CRA’s reasoning and if necessary, consult a tax professional to explore options.
Key Point: Understanding the CRA’s findings will prevent future issues. If you disagree with the findings, know your time frame to file an appeal.
Prevention and Preparation for Future Audits
The best way to handle an audit is to be prepared before it happens. This means having good bookkeeping, internal audits and consulting a tax professional regularly. By following accounting best practices, businesses will be ready for an audit and reduce the chance of financial irregularities that will attract CRA attention.
Key Point: Prevention is the best audit strategy. Consistent record-keeping, CRA compliance and regular tax consultations will minimize audit risk.
Conclusion
Audits don’t have to be scary. With preparation, organization and knowledge of the process, businesses can survive audits. Work with an accountant to know why audits happen, stay organized, communicate quickly and follow CRA rules and you’ll get through audits and grow with confidence.