How to Prepare for an Audit!
There is little else that brings fear and trembling to people as getting a call from the Canada Revenue Agency for a “Tax Audit”.
From an accounting and bookkeeping perspective, tax audits are a normal part of the everyday process a business goes through. An audit is when the tax authorities review your tax returns to determine if income, expenses, and credits are reported accurately. It will begin with a letter, notice, or phone call, a list of records you will need to produce, and a request for an appointment.
There are a number of ways that government authorities decide who to audit:
- Computerized screening
- Random sampling
- Income document matching
- Questionable items on your return
- Market segment studies on how a particular group handles certain tax issues
- Information they have received from sources like the media, public records, or informants
- Suspicion of involvement in special projects or tax schemes
Why Do We Get Audited?
- The tax authorities want to verify that you have reported all of your income from every source accurately.
- The tax authorities want to see your receipts and proof of payment for the various expenses that you have claimed on your tax return.
- If there is unreported income or expenses that cannot be documented, the auditor will make adjustments to the tax return you filed resulting in a balance due plus interest and possibly penalties.
The ability of CRA acting as agency enables different jurisdiction to communicate freely with each other. Any irregularity will be easily detected prompting the tax authority to conduct an audit. Sometimes, one audit could spiral to other regularity body to demand another audit. Often, when one business is being audited, its vendors and competitors would be securitized.
How Can I Reduce The Chance Of Being Audited?
As the saying goes – prevention is the best medicine. Doing it right is the best defense.
Let’s face it – the CRA is in business to go after revenues due to them and it should be no surprise that the auditors tend to be intimidating and overbearing.
One of the biggest benefits many clients receive from our bookkeeping and accounting services is that we represent them during an audit at our office – which means you don’t even have to meet with them. Also, because we have all of your tax records and we are experienced at working with auditors, most audits are completed efficiently and quickly.
Please give us a call if you have any questions or concerns because we care about our clients and are knowledgeable about the changes in legislation that can impact your business.
If you would like to find out more about Accounting Plus Business Services, please contact us at firstname.lastname@example.org or 416-495-1098