How to Prepare For a Tax Audit in Canada

This short article is about how to prepare for a tax audit in Canada. I’m going to give you 5 simple steps to follow at any CRA tax audit to make sure that you win.

This article focuses on businesses and business audits, so let’s get started.

CRA Tax Audit Step #1:

Get to know the due dates. When the auditor first contacts you, ask the auditor for the due date as to when you have to provide all of the information to the auditor by. It’s really important that you do not miss due dates because if you do you could end up with an arbitrary assessment, causing you to pay more tax than you should.

Step #2:

Ask the auditor to put all his questions in writing. There are three reasons for you to do this.

• Number one, it prevents the auditor from going on a fishing expedition.
• Number two, it makes the auditor accountable for all his questions.
• Number three, it gives you time to think and reflect so that you that you don’t provide spontaneous answers which could be incorrect, or provide too much information to the auditor, which could hurt you down the road.

Step #3:

In learning how to prepare for a tax audit in Canada, know that you should give basic financial information to the auditor. The auditor will usually request for an income statement, balance sheet, and a trial balance for your business. It’s important that you have these three reports ready at all times.

Step #4:

The fourth step when it comes to a preparing for CRA tax audit is to organize your receipts. Do not provide the auditor with a shoebox full of receipts and expect him to go through all of those receipts for you. Instead, organize your receipts chronologically, with totals for each expense category and income category.

Step #5:

In dealing with a CRA tax audit, hire a professional. I know it sounds biased because I’m a chartered accountant and I help my clients with tax audits. But really, hiring a professional will make a difference. A professional can help you with many things.

• One, they can serve as a buffer between you and the auditor.
• Secondly, a professional can give you protection so that the auditor does not go on a fishing expedition or ask inappropriate questions.
• Number three, a professional can point you in the right direction and hold your hand throughout the audit process.
• Finally, a professional can make the audit a smooth, stress free and easy process for you so you can focus on running your business.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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