Being selected for an audit by the Canada Revenue Agency (CRA), might leave you feeling overwhelmed, stressed and uncertain about what you need to do. Although the prospect of being audited may be scary and intimidating, having the right documents and information ready can help make the process smoother.
The first thing to understand is that the CRA is entitled to review all financial records from the period under review. The first thing to do is to organize and prepare to provide all of the documents that relate to your income and expenses. These documents will include bank statements, invoices, T4 slips, and tax returns. Organize these documents digitally or physically to share with the CRA in a timely manner. It is important to note that keeping organized files of past tax documents is something that should be done on an ongoing basis even if you have not been audited.
Once you have organized your documents, it is important to understand the purpose of the audit so that you can be prepared to provide any information to answer the questions they may have. Generally, the CRA is looking to verify the accuracy of the income you have reported on your tax returns. They are also looking to ensure that all expenses you have claimed are valid and legitimate. Prepare to share any documentation that proves these expenses are genuine. The CRA may also want to review other documents, such as loans, mortgage agreements, insurance policies, and travel and expense reports.
In addition to providing financial documents, the CRA may also want to review records related to specific items on your tax return. For example, if you’ve claimed a home office expense, the CRA may want to review the documents that support that claim. This could include a floor plan of the house and documentation of the actual expenses incurred, such as internet and telephone bills. Take a look at your tax return and collect any information you need to support your claim.
The CRA may also request documents to verify any deductions or credits you’ve claimed. For example, if you’ve claimed the medical expense tax credit, the CRA may want to see receipts from doctors’ visits and prescription medications. Prepare any receipts and forms that are needed to support the deductions you have claimed.
Finally, it’s important to remember that the CRA may also request documents that relate to other people who may be connected to your tax return. This could include documents related to your partner, children, or any other individuals or businesses that you’ve conducted business with.
Getting notice of an audit can feel daunting but remember to breathe and take things one step at a time. If you have been conducting your business in an honest manner you should not have too much to worry about. Remember to stay calm and professional throughout the process. The CRA is just doing its job and it is important to be cooperative and responsive throughout the audit. Gather the necessary documents and be prepared to provide them to the CRA. LedgerDocs is a powerful tool to help you sort, organize, and keep track of current and past documents, and it will help you to file and provide any information you may need for the audit. For a 14-Day FREE Trial, click here!