Everything you always wanted to know about being audited by the CRA (but were afraid to ask …)
Worried about being audited by the Canada Revenue Agency? Don’t panic, experts say, as an individual tax audit is not as daunting of a process as it seems.
Before launching into a formal audit, the CRA will begin with a “review,” which occurs when an agent calls or mails you to validate information you’ve provided on your tax return.
“Auditors are usually really nice,” says Alim Dhanji, a senior financial planner at Vancouver-based Assante Financial Management Ltd. “It’s good to have an open dialogue with them — I tell my clients there’s no reason to worry as long as you can send the information they need in a timely manner.”
A review is often triggered by a discrepancy between what you report and what the CRA has on file — typically for a specific claim or deduction. “It’s usually a minor fix that can be resolved, but it depends on the CRA’s findings,” said Dhanji.
The odds that the CRA conducts an individual review or audit depend on several factors, says Dhanji. These factors include your income level, the types of credits or deductions you’ve claimed and the complexity of your tax return. For example, someone who is self-employed or has multiple streams of income may have a more complicated tax return.
This year, CPA and TurboTax Canada spokesperson Stefanie Ricchio says the tax community is especially concerned about discrepancies that might be reported as a result of the CRA eliminating the flat-rate home-office expense deduction for 2023. During the pandemic, the CRA introduced a temporary flat-rate method that allowed eligible Canadians to claim $2 for every day worked from home, up to a maximum of $500, as a deduction on their work-fromhome expenses for the 2020, 2021 and 2022 tax years.
With the detailed method back in place, Ricchio says you need to ensure your Form T2200 has been signed by your employer before writing down deductions on your tax return. You should also have physical receipts of these expenses readily available.
“Speaking as a CPA, I have a filing cabinet where I have one file folder for every single tax year where I have my documents itemized and categorized,” says Ricchio. She groups receipts and documents of expenses by category — like office supplies, internet and telephone bills — and staples them together so that she can easily access them.
A simple review could evolve into a formal audit if you aren’t able to provide corroborating documentation for claims or if there are signs of tax evasion or fraud, both of which are offences under the Criminal Code. Triggers for a more indepth investigation include a history of amending your tax return or a series of mistakes on previous returns, said Ricchio. In these cases, an on-site audit will take place at your residence, at your business or at your representative’s office, according to the Government of Canada website, during which an auditor will take a closer look at your books and records, like bank statements.
While the CRA typically audits as far back as three years, the Government of Canada website recommends holding onto your supporting documents for six years. Dhanji suggests Canadians go a step further by keeping these documents on hand for at least seven years.
“It’s so important to make sure that you are in a place where you’re confident that what you’re preparing and filing is accurate to avoid having these types of flags on your account,” says Ricchio.