Help, I’m being audited !
You open your mailbox one day and find a letter from the Canada Revenue Agency telling you that you are being audited. What do you do if you have been selected for an audit? Tax audits can be scary for anyone, especially if they know nothing about the purpose of an audit or how they are conducted. The CRA is one of the most powerful agencies in the country and can destroy your life and business if you are not careful. In this blog, I give six practical tips on how to survive a tax audit.
Step 1. Don’t panic. In some cases, your return was picked at random or due to some mistake that can be easily fixed. More often, it has been picked because they are targeting a specific industry or charity scheme and you are involved in that industry or you donated to that charity. But you have a right to defend yourself and to retain a lawyer to represent you.
Step 2. Have all of your tax-related paperwork ready. Tax audits can happen almost anytime, so don’t trash those receipts as soon as you receive your Notice of Assessment (NOA).The CRA can audit a return several years after issuing a NOA. If they suspect fraud or misrepresentation there is no time limit as to how far they can go back. Keep your records for at least six years. It could save you a lot of time and stress if you are audited.
Step 3. Meet all of the deadlines in the audit letter. If you need more time, ask them for an extension of time, before the deadline expires. This shows the CRA that you are trying to be compliant and are taking the audit seriously.
Step 4. Don’t sign a waiver without first talking to a tax litigation lawyer about your situation. If the CRA asks you to sign a waiver, it’s because the limitation period for re-assessing you within the normal re-assessment period is about to run out.If the limitation period expires before they have completed the audit, then in the absence of misrepresentation on your part, they cannot re-assess you.
Step 5. . Ask the CRA to put all of their questions in writing and then respond in writing. Often times, things you say to the auditor make it into the auditor’s file, and the auditor’s recollection of the conversation is inaccurate.
Step 6. Hire an experienced tax litigation lawyer. Do not hire an accountant unless it is under the supervision of your lawyer. This is because whatever you tell your accountant is not protected by lawyer-client privilege. Your accountant could even become a witness against you. Do not hire a tax lawyer who only does tax planning. They won’t fight for you if you have to take your case to court. Only a tax litigation lawyer does that. At my office we will zealously represent you if you have to take the matter to court, even if that means suing the CRA, your negligent accountant or tax adviser, or that charity that you donated to that turns out to not be a qualified charity.
This is not an exhaustive list by any means. Nor is it legal advice. However, if you are being audited, and need legal advice, then I invite you to contact me as soon as possible.