What to do and not to do when you are being audited by the CRA?

The immediate answer to that question is: Do not panic! To elaborate more on the answer, we first need to understand the Canadian tax system. The Canadian tax system is based on the “Self-Assessment” methodology which requires each resident of Canada to self-assess and declare (report) their income, deductions and benefits on an annual basis. In short, the figures your entered in the tax forms, CRA will accept as fact pending further due diligence if and when required.

Majority of CRA audits are in random but there are instances when an audit is triggered due to significant deviations from historical filings (previous year filings). For example in 2020 an individual paid $25,000 in rent yet that number increased to $38,000 in 2021. Since the amount of rent paid is a determining factor in calculating provincial benefits, the $13,000 increase in the amount, may trigger an audit by the CRA.

The term “audit” may scare many and remind them of the days of inquisition! But in actuality it is simply a request for further information where CRA may request additional supporting documentation from the individual to back their claim. In the case of our previous example, the CRA may request the individual to provide rent receipts or cancelled checks as proof of payment.

Your record-keeping and the quality of the records kept plays a crucial role in the outcome of the audit. Faded and illegible receipts maybe rejected by the CRA and your claim denied. It is advised that you maintain your records for a minimum of 6 years. Once you receive the notice from the CRA there are a few important points you should keep in mind:

The notice carefully

Prepare and submit only the relevant supporting documentation. Submission of irrelevant documents may delay the outcome of the audit

Respond within the time-frame provided but do not wait until the last minute

Be respectful of CRA agents. They are only doing their jobs!

The fastest and most reliable way of responding to a notice is by uploading the requested supporting documentation to “My Account” CRA. Once you login to your account click on “Submit Documents” button on the top of the screen and enter the “Case Reference Number” stated on the top right-hand corner of the notice. In the next screen you will be asked to upload the PDF format file. To avoid complications, its highly recommended to submit a single file. In addition to the receipts, the auditor may also request the individual to submit certain tax return schedules. For example in the case of rent receipts in Ontario, the auditor may also request the “Application for the 20XX Ontario Trillium Benefit” form to be submitted.

The duration of the audit depends on two main factors:

The quantity of the documentation which needs to be reviewed by the auditor in charge

The auditor's workload. Some auditors are assigned tens of cases to review simultaneously. In these circumstances delays are inevitable

The outcome of an audit is reported through either a “Notice of (Re)assessment” or a “Letter of Confirmation”. If you disagree with the result of Notice of Assessment, you have 90 days to appeal. Under certain circumstances, an extension may be granted.