How far back can the CRA audit Canadians?
Published November 20, 2023 at 11:45 am
If you receive a notice from the Canadian Revenue Agency (CRA) that you’re being audited, the news might surprise you and leave you feeling anxious. Here’s what you need to know should you be asked to submit or re-submit your personal financial documents for closer assessment:
What is an audit?
According to the CRA’s website, audits–which are common for both businesses and individuals–are done to ensure the tax system is fair to everyone. During an audit, the CRA will closely examine an individual’s or organization’s books and records to ensure they’re fulfilling their tax obligations, following the laws and receiving any benefits and refunds they might be entitled to.
How does the CRA decide who to audit?
According to the CRA’s website, the government chooses a file for an audit based on a risk assessment, such as the frequency of errors in tax returns or evidence of noncompliance with rules and regulations.
If you are selected for an audit, the CRA will contact you by mail, phone or both to start the process and tell you the audit’s date, time and location. The audit could take place at your home, business, your representative’s office or a CRA office.
The CRA says the auditor may need to make copies of your electronic records or borrow some of your documents (which will be returned as soon as possible). You can send documents electronically, but not over regular email for security reasons.
It’s important to note that the CRA audits can be broad. According to the website, the auditor can examine any personal or business records, including those of other people or businesses, that relate to your filings. The auditor can review the records of family members and speak to employees about your business operations.
What does an auditor examine during an audit?
An auditor will examine any information available to the CRA (such as tax returns, credit history and property details), business records, personal financial records, and records of others connected to you who are not being audited (such as your spouse, business partner or other associate or family member) and adjustments made by your bookkeeper or accountant.
How long does an audit take?
The CRA says this depends on a number of factors, including the state of the records, the scope of the audit, delays due to missing records and consultations with other tax specialists.
How long can you be audited after filing a tax return?
While many accounting websites say you’re most likely to be called for an audit within a year or two of filing your taxes, the CRA says all residents and businesses must keep their documents on file for at least six years. If there is suspicion of fraud or illegal activity, older records may be requested.
What happens after an audit?
If the auditor finds that your tax assessment is correct, no further action will be required and nothing else needs to be done. If it is found that you owe more or are entitled to more, you will be informed and given a chance to voice any disagreement you might have with the reassessment. You have the right to appeal a reassessment.
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