The Income Tax Act gives the CRA broad powers to conduct a detailed review or audit of your income tax return, requesting additional information, either in support of a particular tax return that has been filed, or a request to file a tax return. The telephone call can signal the beginning of a stressful time for individuals and businesses alike.
Knowing what to do and who to call for help goes a long way in reducing this stress!
What should you do when subject to CRA’s audit?
When you receive a call from the CRA:
• Ask for and record the name, badge number and phone number of the CRA representative
• Ask for and record the reason for the call
• Request that the CRA representative forward, in writing, the reason for the review or audit, along with a list of information or documentation required for review
• Call one of our AG Tax offices for help
Aylett Grant – Expert Audit Support and Assistance
Aylett Grant has the expertise and experience to assist you in the following:
• Expert preparation of individual and corporate tax returns that reduce the likelihood of extensive reviews or audits
• Assurance that documentary support is readily available to minimize the duration of CRA audits, with a corresponding reduction of representative costs to you, the client
• Support and representation of your filing to the CRA
• Provision of office facilities and services away from your place of business to balance contact with the auditor and business interruption with the needs of the auditor
Completion of the Review Stage – The Process
Upon completion of the review stage of a Canada Revenue Agency (CRA) audit, the CRA may propose adjustments to the filed tax return (this usually represents a proposed increase in taxes payable).
The adjustments contained in the proposal letter are reviewed and forwarded for re-assessment and a Notice of Reassessment is issued to the taxpayer. Taxpayers have 30 days to review and respond to proposed adjustments.
Depending on the complexity of the tax issues, it may be advisable to engage a representative for the express purpose of dealing with the Auditor. Call one of our AG Tax offices for help.
If a rebuttal is contemplated, then further documentation will likely be accumulated in response to the Auditor’s letter and an argument will be put forward.
A Key Decision
Upon receipt of the Notice of Reassessment, a key decision must be made:
• Will the adjustments be accepted?
• Will you file a Notice of Objection?
Aylett Grant Will Support You Through This Part of the Audit Process By:
• Assuring the proper documentation is accumulated in support of any items or issues under review, with a goal of minimizing or eliminating proposed adjustments
• Using our understanding of the CRA process to minimize the CRA’s time in the review of the returns. This will result in reduced representative costs to you
• Effectively presenting your objection to the CRA proposed adjustments
• At your request, providing office facilities and services for the Auditor, away from your place of business to balance the needs of the auditors with a goal of minimizing interruptions and impacts on your day-to-day business operations
Pre-planning and Managing a Tax Audit
CRA audits are more frequent and tend to be increasingly complex. The first step in effectively managing an audit is to avoid it in the first place by preparing and submitting a return that not only is in compliance with CRA’s standards but is also presented by accountants that know what the CRA is looking for.
Once you and your accountant have reviewed the Notice of Reassessment following the adjustment stage of the Audit, you have to decide to file a Notice of Objection, against the reassessment, or to accept the adjustments made to the previously filed return.
Notice of Objection – T400A
If the decision has been made to file a Notice of Objection, the Objection is filed on a prescribed form, T400A, detailing the reason behind your objection to the reassessment. The filed Notice of Objection is filed with the closest Tax Center and sent to the Appeals Department for review.
At this stage the decision to file a Notice of Objection does not have to be costly. The CRA does not require a representative be engaged to deal with the Appeals staff.
However, having an Aylett Grant professional accountant prepare the objection and/or review your completed T400A will help to assure that the objection is presented in the most effective manner, states the relevant facts and reasons and takes advantage of the in-depth knowledge only years of experience can provide.
Should there be no consensus at this stage then the next step is to take the objection to the next level, the Tax Courts
However, if you have received and Notice of Re-Assessment, a properly structured and researched plan, accompanied with solid audit expertise and experience is needed to:
• Properly provide the information and documentation required by the Auditor
• Effectively respond to the Auditors queries
• Avoid unnecessary delays that can protract the audit process
• Defend your tax filing
Errors and Inefficiencies
Errors and inefficiencies in the above can lead to misunderstandings, excessive costs and penalties. While audits are seldom welocomed by the taxpayer; there is no reason for an audit to be a meeting of “confrontation”.
Aylett Grant: In-depth Audit Experience
Aylett Grant has years of in-depth audit support experience. We know what the Auditor is looking for and why. We will help you to present your case in the most effective, legal, positive and cost-effective way by:
• Preparing you for the audit process so you will know the factors critical for a successful audit and what to expect in terms of the steps in the process
• Providing the technical expertise and the experience with the audit process to minimize the o the client to deal with the Auditor and the Audit.
Should additional taxes be payable after all avenues of objection have been exhausted, the issue then becomes how to deal with the CRA Collections Department (Collections).
Collections’ mandate is to collect the additional taxes owing at whatever cost determined necessary by them. This could involve freezing of business bank accounts, seizing of assets, or even necessitate the bankruptcy of a particular taxpayer. Given the current financial crisis in the Canadian economy Collections has become more and more aggressive in their pursuit of fulfilling their mandate.
The taxpayer has certain options available in dealing with Collections:
• Pay the amount of additional taxes immediately! Subject to the reassessment, a taxpayer could be facing not just the prospect of paying the additional taxes but also penalties and interest. The taxpayer has to make a decision at this point in time to decide whether or not to dispute the particular reassessment.
• Disputing the reassessment will transfer any tax liability relating to the reassessment into a separate account within Collections called “taxes in dispute”.
• The transfer of any tax liability into this account will prohibit Collections from attempting to collect the amount until the particular dispute has been resolved. Please note that interest on any tax liability will continue to accrue until the respective amount has been paid off.
Aylett Grant Will Support You By:
• Assisting in the preparation of the Notice of Objection
• Representations to Collections on your behalf
AG TAX LLP CAN HELP
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with US and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to US, Canadian, and other international tax laws. We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- US Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.