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Most people watch enough TV and movies to know that if you’re a suspect in a crime, you should always “lawyer up” and not say anything to the police because they try to get you to incriminate yourself and use whatever you say to make you sound and look guilty of the crime.

What many individuals and business owners don’t know, unfortunately, is that the same is true if you’re being audited by the CRA. How you respond to an impending audit, how you prepare for it and even what you say to a CRA representative could land you in hot water.

So, just like you would if you were charged with a crime or under investigation, if you receive a letter from the CRA notifying you that you will be subject to an audit of your tax return(s), get in touch with Taxpage tax lawyers. They have over 35 years of tax law and CRA audit experience, and they offer free consultations.

Below is a quick overview of the CRA audit process.

An Overview of the CRA Audit Process

When a tax return is selected for an audit, the taxpayer is usually asked to provide preliminary information regarding their return and is sometimes required to complete a pre-audit questionnaire and/or follow-up information.

During an audit, the auditor reviews the return or the line items (such as reported income or claimed expenses) and asks the taxpayer to provide supporting documentation for verification. This often includes:

  • Personal financial records like bank statements, bills, mortgage papers, etc.
  • Business records like contracts, receipts, invoices, credit card statements and deposit slips.
  • Financial records, whether business or personal, of persons or businesses that are connected to your return.

After reviewing your documents, if the paperwork doesn’t match up with what was reported in your return, the auditor will discuss the discrepancies with you. Your answers and everything you say during the audit may impact the repercussions you face, which is why it’s crucial to get legal advice before the audit and why you may need legal representation during the audit.

When the audit is complete, the auditor will make one of two decisions:

  • No Reassessment. If the auditor is able to reconcile the information you provide with your return, the process ends, the audit is closed, and the taxpayer receives a letter to that effect.
  • On the other hand, if the auditor does not accept your answers or documentation, and decides that the proper amount of tax was not paid, they will recommend a reassessment of the tax return in a proposal letter that provides the reasons they came to that conclusion and the amount of taxes they feel you should have paid.

There is also the possibility that an audit and reassessment will result in a refund. Once you receive your proposal letter, the clock starts ticking, and you only have 30 days to notify the CRA that you disagree with the auditor’s findings. If you hadn’t consulted a tax lawyer before this point, now is the time to seek their advice on appealing the reassessment proposal. If you don’t respond within that time, your tax obligation will be reassessed according to the proposal, which likely means paying more in taxes.

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