What are your responsibilities and what happens during an audit? - Part two
Let's face it. Being audited can be overwhelming. Having the right information, and knowing what to expect, can help. These videos explain the CRA's tax audit process in three parts, and will cover:
- Why do we audit and what is a tax audit?
- What are your responsibilities and what happens during an audit? And
- What are your rights?
Welcome to part two.
What are your responsibilities and what happens during an audit?
Your responsibilities as a business owner are:
- To meet registration, reporting, filing, and payment obligations under the laws that the CRA administers;
- To keep your books and records up to date and in an accessible and readable format either on paper or electronically; and
- To provide your books, records and supporting documents to the auditor upon request.
Your help and the state of your accounting records play an important part in completing the audit in a timely manner.
You are probably aware that, generally, you have to keep your books and records for six years from the day you file your tax return. Within those six years, we can ask to see your books and records to verify your reported income or taxable supplies and expenses or input tax credits. In certain rare cases, we can ask to review books and records outside that six-year period.
You can raise any concerns you may have with the auditor or with the auditor's supervisor at any time during the audit.
What happens during an audit?
The auditor will call you or send you a letter or sometimes do both. The auditor will give you his or her contact information, explain the scope of the audit, and identify the tax years or reporting periods that will be audited and the documents and information that you must provide.
The auditor will schedule a suitable time for an initial interview at your place of business.
At the initial interview, the auditor will show you an identification card, explain the audit process, learn about your business and ask to see your books and records.
Before examining your records, the auditor will tour the business premises to get a better understanding of your business.
We prefer to review the books and records at your place of business. This review can take several days.
If there is not enough space at your place of business, we will borrow the books and records and review them at our office. We give you a detailed receipt for the borrowed documents and return them to you when the audit is complete.
We might have to make copies of your documents during the review.
To save time during the audit the CRA gives you the option of submitting your records electronically. You can do this if you are registered in My Business Account.
Throughout the audit there will be ongoing discussions to clarify information or concerns that either you or the auditor may have.
After the auditor completes the review, he or she will prepare a schedule of any proposed adjustments to your tax assessment with detailed calculations and explanations and will discuss them with you.
If you don't agree with the proposed adjustments to your tax assessment, you will have a reasonable amount of time, usually 30 days, to respond to the auditor. We recommend submitting your response in writing.
The auditor will consider all your explanations before closing the audit. Then, you will receive a final letter that explains the results of the audit and the consideration given to your response to the proposed adjustments. If the audit resulted in a net change to your taxes, with either a refund or an amount due, we will mail you a notice of reassessment.
If you don't agree with the notice of reassessment, you can file an objection with the Appeals division of the Canada Revenue Agency within 90 days from the date of the reassessment. You will have to explain why you disagree and include all relevant facts and documents.
For a more detailed look at Keeping Records, watch our video at www.cra.gc.ca/videogallery.
For more information on anything we've discussed in these three videos, please check out our audit pamphlet RC4188, What you should know about audits, or go to www.cra.gc.ca/audit.
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