October 1998 volume 2, issue 3 

Tax audit.

There are few words that evoke greater apprehension in the life of a small business owner or individual taxpayer. The thought of having the Canada Customs and Revenue Agency go over your books can be a daunting one, but a real-life audit need not be a fearful experience.

In recent years, the number of audit staff at the Belleville Canada Customs and Revenue Agency office has been significantly increased. This means that the odds of being audited have risen, especially for small businesses and individuals reporting self-employed income.

Each year, the Canada Customs and Revenue Agency will issue you an Assessment Notice. This means they have run basic mathematical checks on your return and will report on its accuracy. This is not an audit, nor does a correct Assessment Notice mean you will not be audited. The Canada Customs and Revenue Agency has up to three years to decide whether or not to audit your return.

If you are contacted by the Canada Customs and Revenue Agency and informed you have been elected for an audit, there are some key pieces of advice to follow in order to make the experience as painless as possible:

• Remember that being selected for audit does not mean that the Canada Customs and Revenue Agency suspects you of cheating on your taxes. The random selection process used by the Canada Customs and Revenue Agency is meant to test compliance, and does not mean you are being accused of tax fraud. If your records have been well-kept, you need not be on the defensive.
  
  
• Respond to contact from the Canada Customs and Revenue Agency promptly and courteously. If you have been chosen for audit there is no way to avoid it, so don't cause friction before the process is underway.
  
  
• Cooperate with requests for information. The Canada Customs and Revenue Agency is legally entitled to study your records, so withholding information is not advisable. You can and should ask why the information is being requested, and you can keep accurate records of your contact with the Canada Customs and Revenue Agency, including the dates, times, names, and conversations or correspondence you have with audit staff.
  
  
• Call us immediately and request that your audit be held at your accountant's office. This can ease the disruption of your workplace, and assures that your accountant will be there to assist in the audit process.
  
  
• Check the work of the auditor. Auditors can make mistakes, and they can hold different interpretations of the regulations. Negotiate through they "grey areas" to try to obtain the best results.
  
  
• Seek the advice of a taxation professional such as The Wilkinson Tax Group. A well-trained expert can help with audits that are not going smoothly and can inform you of your options and available strategies.
  
  
• • Do not volunteer information that is not requested by the Canada Customs and Revenue Agency, unless it helps your case. Otherwise you may be extending the audit process and making it more difficult for everyone.
  
  
• Don't delay in filing your Notice of Objection should you disagree with the auditor's reassessment. A letter to the Chief of Appeals at your local taxation office suffices to start the appeal process. You have the later of 90 days from your notice of reassessment or a year from the due date of the tax return to file your objection.

Throughout the audit process, interact professionally with the Canada Customs and Revenue Agency staff. Make their job easy by being courteous and prompt. An audit can be a process of negotiation as much as mathematics, so be diplomatic.

Most audits of small businesses and individuals do not last more than a week or two. If your accounts have been well kept, the questions and problems should be very minor or non-existent.

Throughout the audit process, you are given time to confer and discuss matters with your representative - your accountant. At Wilkinson & Company LLP , we are very experienced in successfully handling audits, and will help you through every step in the process to make sure you are treated fairly and, most importantly, that you understand the process.

Steve Thompson, CA, CFP, TEP is a tax partner and Certified Financial Planner with Wilkinson & Company LLP. He is a graduate of the Canadian Securities Course, and author of the best-selling tax guide, Beat the Taxman: Easy Ways to Save Tax in Your Small Business.