The Canada Revenue Agency (CRA) audits businesses to make sure they are following tax laws and filing correctly. While the thought of an audit can be stressful, consult with a qualified accountant Mississauga to learn the process and how to prepare your business to get through it. Here’s what businesses need to know about CRA audits and how to manage them.
Why Does the CRA Audit Businesses?
The CRA audits businesses to make sure tax returns are accurate and complete. Some common reasons for an audit are:
- Red Flags in Tax Returns: Unusual deductions, discrepancies or large claims.
- Industry Trends: The CRA may compare your business metrics to others in the same industry.
- Random Selection: Sometimes audits are done randomly as part of routine compliance.
Knowing why you might be selected can help you address issues ahead of time.
Types of CRA Audits
CRA audits can take many forms depending on the complexity of the file:
- Desk Audit: A simple review done by correspondence. You’ll be asked to provide specific documents, such as invoices or receipts, to verify.
- Field Audit: A CRA auditor will visit your business to review records in person.
- Comprehensive Audit: A full review of all financial records, including tax returns, payroll and expenses.
Each type of audit requires preparation.
How to Prepare for a CRA Audit
You should seek professional help from an experienced accountant Edmonton. Note that preparation is everything:
- Keep Accurate Records: Keep detailed and organized records, including receipts, invoices, payroll records and bank statements. The CRA requires businesses to keep records for at least 6 years.
- Respond Quickly: If the CRA contacts you, respond quickly and provide the requested documents within the time frame given. Delays can raise flags or escalate the audit.
- Review Your Filing History: Check previous tax returns for consistency. Fixing errors beforehand can help you address issues.
What to Expect During an Audit
The CRA auditor will start by explaining the audit scope and requesting specific documents. During the process:
- Be respectful.
- Only provide what is asked for. Don’t volunteer extra info.
- Ask if you don’t understand a request or requirement.
How to Avoid Audit Traps
To reduce stress and make it go smoothly:
- Don’t Commingle Personal and Business Finances: Keep separate accounts for personal and business expenses.
- Don’t Claim Unwarranted Deductions: Only claim deductions for legitimate business expenses with documentation to back it up.
- Be Transparent: Misrepresentation or withholding information can lead to penalties or legal action.
Get Professional Help
If you’re not sure how to handle an audit, consider hiring an accountant or tax professional. They can:
- Represent you during the audit.
- Ensure your records are CRA compliant.
- Negotiate if there are discrepancies.
Post Audit
After the audit the CRA will provide a report of their findings. If adjustments are required you may owe more taxes, interest or penalties. If you disagree with the findings, you can appeal or request a second review through the CRA’s dispute resolution process.
Conclusion
CRA audits are a part of doing business in Canada. By keeping accurate records, responding quickly and getting professional help, you can manage the process with ease. Proactive compliance with tax laws not only reduces the likelihood of an audit but also keeps your business in good standing with the CRA.