Francesca Giroux, CPA
For the Lakeside Leade
What is an audit? Why are individuals or corporations selected for an audit? An audit is conducted to ensure taxpayer compliance, such as, has the individual/corporation reported all of their income correctly and remitted the correct amounts for GST and payroll. Thus an audit can be conducted across the following areas GST/HST, income tax, excise taxes and duties and payroll.
The Canada Revenue Agency (CRA) keeps extensive records of the returns filed by all individuals and corporations. These records allow for the filed returns to be sorted into various categories so that selection criteria can be applied.
There are four common methods of audit selection. The first is computer-generated lists, which can group clients based on criteria such as geography and industry. From there, returns with audit potential (potential of CRA collecting money) are identified. There are several reasons as to why a file may be selected as having audit potential. Some red flags include; issuing large bonuses, having a significant difference in the ratios for expenses from year to year, previous issues with the CRA such as unpaid balances, or consistently late remittances, returns can even be selected simply because the client has never been audited before!
Second, audit projects are also used for audit selection, which assess the compliance of a particular group of taxpayers; for example, carpenters.
Third, leads from information from other files, or outside sources/informers can also be used.
Finally a file could be selected because it is connected with another return that is being audited or has been previously selected for audit, i.e. partnerships with another client whose returns are being audited.
If you have the joy of being selected for an audit, don’t panic! Provide the auditor with the information requested or your accountant’s contact information in order to avoid delays in the audit process.
For future planning, maintaining well-kept records can also help to reduce the amount of time it takes to complete an audit.
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Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPA for information specific to your own needs.