Thursday, May 23, 2024
HomeTaxHow to Prepare for a Tax Audit When the CRA Comes Knocking

How to Prepare for a Tax Audit When the CRA Comes Knocking

Nobody likes a surprise visit from the Canada Revenue Agency (CRA), especially if it’s an audit. But while being audited can be stressful, there are a few ways you can do to prepare and ensure you are compliant since the CRA is cracking down heavily on tax cheats.

This zealous endeavour by the CRA was triggered by a whopping $4 billion in unreported income related to the underground economy (UE) between 2015 and 2018. 

The UE negatively impacts the economic growth of the whole of Canada. Tax-paying businesses struggle to grow while competing with enterprises operating in the shadows with significantly less overhead cost.

Aside from evading taxes, companies that work under the radar don’t have to pay for their employees’ medical insurance and retirement plans — further damaging the economy. 

The CRA is imposing heavy fines for people cheating on taxes. So, it pays to know what to expect when the CRA comes knocking.

Here are some tips on preparing for a tax audit so you don’t get caught off guard.

Understand Why the CRA is Conducting an Audit

Understanding why the CRA conducts an audit is essential to prepare for one properly. A tax audit is an in-depth review conducted by the CRA of a person’s or company’s finances and taxes to ensure that all taxes are wholly and accurately reported.

When a tax audit is initiated by the CRA, they might need to verify any information listed on a tax return. It can also be because they want to investigate possible fraud or non-compliance or if a return appears unusually complex.

Knowing why the CRA is conducting an audit can help you anticipate what documents and records will be requested during the process. It also lets you know what information needs to be gathered for the audit. That is important as it will help you be better prepared when responding to any questions or requests asked by the CRA during an audit.

Gather All Your Financial Records From the Past Few Years

When the CRA comes to conduct a tax audit, it is essential to be prepared and to have all your financial records for the past few years ready for review. That includes all income statements, deductions, receipts, credits, and other financial documents related to filing taxes.

To adequately prepare for a tax audit, you should make copies of all your financial records for the past few years and store them securely. That will help you quickly access any documents the CRA may request during the audit.

Review Your Tax Return for Accuracy and Completeness

Before you can prepare for a tax audit, reviewing your tax return for accuracy and completeness is imperative. Checking the accuracy of information is extremely important because mistakes in filing can result in hefty penalties from the CRA.

Therefore, take the time to carefully review all the information you have put on your tax return. This includes deductions and credits to ensure you can stand by every number.

In addition to accuracy, ensure you properly submit the necessary documents and forms with the tax return. That will prevent any issues during the audit process since the CRA will have access to everything they need to review your financial records.

Make Sure You Have a Record of Any Deductions or Credits Claimed on the Return

When filing a tax return, it is crucial to make sure that you have a record of any deductions or credits claimed on the return. That is necessary because, during a tax audit, the CRA will ask for proof of all deductions and credits listed on your tax return. Without this information, you may be subject to fines or other penalties.

To ensure you are prepared for an audit, you should gather all the supporting documents for any deductions or credits claimed on your return. These include receipts for donations made to charity and invoices for medical expenses. That will help ensure you can quickly provide evidence of any information on your return.

Consult With a Professional for Advice or Representation

No one likes to be audited by the CRA, but with proper preparation, you can ensure it goes as smoothly as possible. Gathering all your financial records, reviewing them for accuracy, and having a record of any deductions or credits claimed on the return, should help set you on the right path.

Additionally, by having a solid plan to answer questions about expenses and income, you should have no problem dealing with an audit if it ever occurs.

However, if you still need to figure out how to deal with these things, you can always seek professional help. Consider consulting with a professional who has experience dealing with tax audits.

Their guidance and expertise will ensure that everything is handled correctly when the CRA initiates a tax audit.

More from MoneyVisual

Recent Posts

Most Popular

Educational Topics