What is an audit?[1]

Auditing allows the Canadian Revenue Agency (“CRA”) to monitor and inspect GST/HST and income tax returns, customs import documents, and payroll records.

 Why did CRA select my business for audit?

Your tax return is recorded in a computer system that enables CRA to select returns to be audited.  From computer-generated lists of returns for potential audit, CRA chooses specific returns. Three other common ways of selecting files are:

1. Audit Projects: in some cases, CRA tests the compliance of a particular group of clients. If the test results indicate that there is significant non-compliance within the group, CRA audits its members on a local, regional, or national basis.

2. Leads: leads include information from other audits or investigations, as well as information from outside sources.

3. Secondary files: sometimes CRA selects files for audit because of their association with other previously selected files. For example, if you are in partnership with another client, and that person has been selected for audit, CRA may examine all the records at the same time.

 My business has been selected for audit - now what?

If you are selected, an auditor will arrange a date to start the audit. The auditor will then attend your place of business and review the following records:

1. the return or customs documents selected for audit;

2. financial statements;

3. audit reports from previous audits, if any; and

4. any other information in your business

On arriving at your place of business, the auditor will ask you about the nature of your business, and/or tour the premises. The audit usually includes an examination of your ledgers, journals, bank accounts, sales invoices, purchase vouchers, and expense accounts. Throughout the process, the auditor will need to get information and assistance from your employees, particularly those who do your accounting.

 What happens next?

When the audit is completed, the auditor will propose certain adjustments (usually upward) to your return. He or she will prepare a summary of the proposed adjustments. If you request it, or if it is reasonable to expect that you will need some time to analyze the proposed adjustments, the auditor will confirm the proposal in writing and allow time for your reply. If you provide additional information within this period, the auditor will consider it and will issue a new proposal letter, if applicable. Once the audit assessment is finalized, you will be issued a Notice of Assessment or Notice of Reassessment.

 What should I do now?

The law firm Du Markowitz LLP will handle your file, including all objections and appeals, and insisting on your full rights and entitlements from CRA.  Du Markowitz LLP’s experienced tax litigators, some with accounting degrees, will ensure you are treated fairly by CRA and vigorously defend your rights throughout the audit process.