Audits can be stressful events, but with proper preparation and diligent record keeping they can be a smooth and relatively painless process. For assistance with Audit preparation and to learn more on how to prevent or decrease your interest, penalties or CRA payments
Canada Revenue Agency (CRA) Audits
Audits are an important part of the CRA’s range of activities aimed at making sure the tax system is fair for everyone. During an audit, the CRA closely examines the books and records of a taxpayer to confirm whether they are fulfilling their tax obligations, following tax laws correctly, and receiving the benefits and refunds to which they are entitled.
The CRA chooses a file for audit based on a risk assessment. The assessment looks at a number of factors, such as the likelihood or frequency of errors in tax returns or whether there are indications of non-compliance with tax obligations such as inconsistencies with prior filings or consistent late filings. The CRA also looks at the information it has on file for the taxpayer and may compare that information to similar files or consider information from other audits or investigations. Filing accurate returns on time therefore significantly reduces the risk of audit.
An Audit may be a complete company audit, or a limited audit such as a Payroll or HST audit.
At the end of the Audit you will receive an assessment. You have the right to appeal an audit. For more information, see CRA site for Business Audits
Interest & Penalties
If you or your company fails to file a return by its required due date, or if it is determined through an audit that you or your company has under-reported taxes, or if you do not comply in any other way with the provisions and regulations under the Income Tax Act, one or more penalties and interest may be charged. In addition to penalties, interest is also charged on overdue taxes. These prescribed rates differ depending on the nature of overdue taxes. For more information related to interest and penalties, please refer to CRA Interest & Penalties
Voluntary Disclosure Program
The Voluntary Disclosures Program (VDP) gives you a second chance to correct a tax return you previously filed or to file a return that you should have filed. If you file a VDP application and it is accepted by the Canada Revenue Agency (CRA) you will have to pay the taxes owing, plus interest in part or in full. However, you would be eligible for relief from prosecution and, in some cases, from penalties that you would otherwise be required to pay.
As the majority of Canadians file and pay their taxes in full and on time, it is important that the relief provided under the VDP be fair and not reward individuals or corporations looking for a way to avoid paying their fair share of taxes. To ensure fairness for Canadians, applications for relief from taxpayers who intentionally avoided their tax obligations will not get the same relief as those who want to correct an unintentional error. The CRA will also restrict participation in the VDP if it has already received information on a taxpayer’s (or a related taxpayer’s) potential involvement in tax non-compliance; for example, a leak of offshore financial information, or other information that names the taxpayer.
You can apply to the VDP to correct errors or omissions in your tax filings through two streams, depending on the type of disclosure you want to make. To help determine which stream is appropriate for your disclosure, refer to the links below
If you could not fulfill your tax obligations and requirements due to extraordinary circumstances, actions of the CRA, inability to pay, financial hardship, or other circumstances beyond your control; you may be able to apply for Taxpayer Relief or, you may be in a position to have penalties or interest charges Cancelled or Waived.
Taxpayer Relief Provisions
If you could not fulfill your tax obligations and requirements due to extraordinary circumstances, actions of the CRA, inability to pay, financial hardship, or other circumstances beyond your control, you may be able to apply for Taxpayer Relief or you may be in a position to have penalties or interest charges cancelled or waived.
The CRA administers legislation that gives the Minister of National Revenue discretion to:
- cancel or waive penalties or interest
- accept certain late, amended, or revoked income tax elections
- issue a refund or make an adjustment to refund or reduce tax payable beyond the normal allowed period
This legislation is commonly called the taxpayer relief provisions.
For more information please see CRA Taxpayer Relief Provisions
Cancel or Waive Penalties & Interest
The Minister may grant relief from penalty or interest when the following types of situations prevent a taxpayer from meeting their tax obligations:
- extraordinary circumstances;
- actions of the CRA;
- inability to pay or financial hardship;
- other circumstances
For more information about the circumstances that may warrant relief from penalties or interest, see CRA Cancel or Waive Penalties or Interest To submit your request for relief, we recommend you use CRA Form Request for Taxpayer Relief
Written May 11, 2020 & Updated July 22, 2020
Audits are emotionally stressful and consume considerable time and resources. Let’s work together to make these easier to manage.
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