Hearing from CRA
Receiving a brown envelope in the mail from the Canada Revenue Agency can strike fear into the hearts of Canadians. (Well, those of us who aren’t accountants). Most of the time the content is benign and is just an HST form for business owners, or a Notice of Assessment.
However, once in a while you will receive a notice that you are being audited. Once you’ve recovered from the shock, the thing to keep in mind is that the decision wasn’t personal. There many have been something on your tax return that their software found suspicious or it may have been a random audit. Sometimes the CRA targets certain professions for audits and you just got caught in their net.
CRA auditors are people
A lot of us look at the CRA as this giant organization who’s out to get us, but when you’re being audited, it’s just one auditor who’s been assigned a file – one of many they are going to be dealing with in their career.
All the auditor wants to do is tick off the box that they’ve completed this audit. If you’ve done nothing wrong, you have nothing to worry about.
So how do you make the process go smoothly? I can’t underline this enough – give them the information they ask for without making life difficult for them. Chances are the auditor will finish it and think ‘that wasn’t so bad – I’ll try to make it not painful because they’ve made it a reasonable process for me.’
Something’s wrong
Of course, sometimes the auditor will find something questionable in your return. Whether you’ve done something knowingly or unknowingly, you will still have to deal with it.
No matter what the auditor finds, you have the right to appeal. You can appeal back to the first auditor who provided the response or you can appeal to the CRA, at which point a new auditor will be assigned.
If you so choose, you can appeal to a higher level, which is usually tax court. Effectively, the process becomes more expensive, but you can ask. Sometimes you have to consider the cost/benefit. If the dispute is over $60, it may not be worth paying an accountant to draft a response and send it off. You can keep arguing for the principal or you can leave it alone and just pay it.
Always respond to letters from the CRA
If you don’t respond to them, they will eventually summarily rule against you. If you wait long enough, their decision is considered final, even if they were wrong.
With HST, sometimes the CRA wants to verify your input tax credits (HST you paid) and requests some of your receipts. If you ignore that request, they’ll just take out all the input tax credits from your HST return. From their point of view, you didn’t provide any supporting receipts or records, so they assume you don’t have any supporting records.
What people often forget is that you’re asking the CRA to give you money back – it’s within their right to say ‘prove it’.