If you’re being audited for your personal or corporate taxes in Toronto, it’s vital for you to have an established relationship with a tax audit professional so that you can respond to these matters in the most professional way possible.
While no one wants to be audited by the CRA, it’s something that may happen to you or your business eventually. If you don’t get the right help, you may be exposed to even more problems in the future. The process can be truly stressful and overwhelming but working with a professional can help you organize everything so that you get around the issue sooner than later.
Our team at the RC Financial Group is trained to handle all your potential problems regarding the CRA in Toronto. It’s our goal to help you understand how the tax law works in Toronto, so if you need any CRA audit tax help, you’ve come to the right place.
What Is a Tax Audit?
In essence, the Canada Revenue Agency is the entity responsible for collecting taxes and administering law taxes and policies to the general population. When someone gets audited for the CRA, it’s going to examine the records and books of self-employed individuals or businesses to ensure they’re compliant with their tax obligations.
Tax obligations include GST/HST, income tax, employee benefits, or payroll remittances. As long as you have all your paperwork in check, you shouldn’t have anything to worry about.
However, the reason many people fear a CRA tax audit is because they often don’t know when they’re going to get audited. Even if you believe you have everything in check, there may be some details that could trigger an audit by the CRA.
What Can Trigger an Audit from the CRA in Toronto?
There are several triggers that may cause the CRA may consider auditing you or your business. Keep in mind that the people working at the CRA are trained professionals, so if your papers are correct, you’re not likely to get audited.
Still, here are some of the most common causes that may trigger an audit from the CRA:
Self-Employment: Unfortunately, being self-employed doesn’t involve taxes withheld at source unlike taxpayers receiving T4 income. As a consequence of the factors mentioned before, self-employed people are more likely to report their taxes incorrectly, which can trigger an audit from the CRA.
Cash Businesses: Some people running cash businesses don’t declare all of their cash income. Considering that the CRA can recover a much higher tax amount from undeclared cash income in comparison to other businesses, it makes them a bigger target for the CRA.
Higher Expenses in Comparison to Other Companies in the Same Industry: Most companies within the same industry share similar expenses. The CRA system often compares different pieces of taxpayer information. If an individual or business seems too different from the rest, it may trigger an audit.
Repeated Losses: Reporting business losses for many years can trigger an audit for the sole reason that people wouldn’t normally operate an unprofitable business. In case the taxpayer can’t demonstrate that they had a particular and reasonable expectation of profit, they may be denied their expenses.
Audit of Related Parties: While it’s uncommon, you may get audited simply because a related party to your business is being audited.
Particular Sectors Within the Industry: Some industries, such as construction, restaurants, or retail businesses tend to be on the CRA’s watchlist since they tend to handle much more cash than other businesses.
Criminal Activity: Regardless of whether the person is operating a legal or illegal business, they’re subject to paying taxes. According to the CRA, if someone is convicted of a crime and the CRA learns about any illegal business that took place, the person can get audited for the proceeds that came from that business; this is a problem considering criminal businesses don’t tend to keep receipts of their operations.
General Discrepancies in Data: Generally speaking, if the CRA analyzes your books and records and finds a discrepancy, you’re going to get audited. Some common causes of discrepancies include differences between your lifestyle and your income, marital status, and more.
What Happens When You Get Audited?
If the CRA wants to start an audit for you or your business, you’re going to receive a notice with the institution’s intention to audit. Overall, the notice document includes relevant information about what the CRA needs to get the process started.
Keep in mind that if you get a notice from the CRA, the worst thing you can do is to ignore it. Once you’re in the audit, the auditor is going to discuss the discrepancies they found with you. If everything is good to go, the audit gets closed without any issues.
On the other hand, if the CRA considers that your tax return must be reassessed, you’re going to receive a proposal letter which you have the option to deny or approve. In these cases, you may either need to pay more taxes or get a refund. Moreover, you have the option to appeal a tax reassessment if you don’t agree with it.
It’s vital for you to get representation as soon as you get the notice from the CRA in Toronto. As long as you’re able to organize your financials efficiently, you’re going to get your audit completed sooner than later. Additionally, getting the right advice from the professional ensures you don’t have to pay more taxes than you already owe the government.
The team at the RC Financial Group is comprised of qualified professionals, such as investment advisors, business consultants, and chartered accountants. If you fear you can get audited (or got the notice already) make sure to contact us so that you can get the CRA audit tax help you need.
How Far Back Can the CRA Go in an Audit?
Generally speaking, an audit can go back up to four years. There may be some cases in which there’s suspicion of gross negligence or fraud; in these cases, the CRA may be able to go back as many years as possible to get to the bottom of the problem.
In essence, as long as the CRA can justify the reason for the audit, it may be able to go back as much as it wants. However, you shouldn’t worry about that problem if you get the right financial help from our professionals.
What Can You Do to Avoid an Audit?
There are several things you can do to avoid a CRA tax audit in Toronto. While these strategies are not proven to completely avoid the possibility of getting an audit, they can certainly reduce the chances. Some strategies include the following:
- Being honest and accurate with your tax report
- Avoiding declaring business losses every year
- Filing tax return forms on time
- Working with the right partners
- Being consistent with expenses and income declarations
- Talking to a certified financial expert
Need CRA Audit Tax Help? Work with the RC Financial Group?
The RC Financial Group team of accountants has the knowledge and experience required in most areas of the finance world. Thanks to the company’s solid business model, individuals and businesses are able to organize their financials and fill out their tax returns efficiently, giving them peace of mind for the future.
If you need any help with your CRA audit in Toronto or want advice to avoid it, consider calling our team!