How a CRA Tax Audit Can Affect Your Finances

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Have you received a tax audit notice from the Canada Revenue Agency (CRA)? The CRA is becoming increasingly vigilant in ensuring that individuals and businesses pay their taxes right. Notably, around 30,000 Canadians get CRA audit notices through a letter or phone call every year.

Although it happens often, facing a CRA audit can be intimidating, especially if it’s your first time. The agency selects a file for an audit based on a risk assessment. It examines numerous factors, including how likely there are errors in tax returns or if there are signs of non-compliance.

Avoiding the typical audit triggers can lessen your risk of getting flagged. Still, it won’t ultimately make your tax returns audit-proof since some CRA audits can occur randomly. The best way to deal with these audits is to always be ready for them and consult a tax professional.

What happens when your file gets selected for an audit? This article will explore the possible financial implications of a CRA audit. We’ll also discuss when and how to seek expert tax audit help.

CRA Tax Audit Outcomes and Their Financial Implications

The possible outcomes of a CRA tax audit can vary depending on the auditor’s findings on your tax return and supporting documentation. Below, we’ll explore what can happen at the end of the audit and their potential implications on your finances.

No adjustments needed

After the initial contact, there’s a chance that the auditor will decide your file doesn’t require an audit. That is if their findings prove your tax return is accurate. If so, they will issue a completion letter and close your file.

Owe additional taxes

Suppose the auditor determines that your file needs more scrutiny. They will schedule the date and time for the audit.

If the assessment shows that you owe more taxes, the auditor can give the estimated amount before the CRA sends you a notice of assessment or reassessment. Paying all or part of the amount you owe sooner lets you avoid interest charges instead of waiting for the notice.

You typically have 30 days to accept the assessment or contest the additional taxes proposed. If you disagree with the audit findings, you must contact the auditor. They will require you to explain the reason for disagreement and substantiate your position with relevant facts and documents.

Entitled to a refund

In other instances, the auditor may find that you paid too much and are entitled to a refund or tax benefit. The CRA will inform you of your eligibility for a tax refund. This can give your finances a helpful boost and balance out any possible tax liabilities discovered during the audit.

When and How To Seek Professional Tax Assistance

Suppose your file gets selected for an audit, the CRA will clearly outline the process, the documentation required, and the auditor’s contact information. Once you understand what the CRA is looking into and the type of audit involved, you have two options for proceeding.

You can decide to handle it yourself or seek professional representation. You can use online or self-help tools if your audit problem is simple. The CRA publishes audit guides to help you navigate the process.

Alternatively, seeking tax audit help from an accountant is highly beneficial. Although optional, an experienced tax accountant can help you organize your financial records. They can represent you during the audit, responding to CRA inquiries while protecting your rights.

Conclusion

Going through a CRA audit can significantly affect your financial situation. Whether it leads to owing more taxes, paying interest, facing penalties, or even getting refunds, taking prompt action can mitigate its financial impact.

Consider getting assistance from tax professionals, especially when facing substantial tax liabilities, penalties, or interest charges. Their expertise can be critical in minimizing the adverse outcomes of the audit process.