After the sometimes long and arduous process of filing your business or personal tax returns, receiving a letter from the Canada Revenue Agency can feel quite nerve-wracking; but if you receive a letter in the mail from the CRA, it doesn’t mean that you’ve necessarily done something wrong on your tax return. Before you start to worry that the Canadian Government is going to come after you for a simple oversight, it’s important to understand what you’re actually looking at. Read this quick guide to learn the differences between an audit, a review, and a notice:
There are several types of communication that fall under the umbrella term “notice”. If you receive a Notice of Assessment in the mail or Online, it is because you have recently filed a tax return with the Canada Revenue Agency. Your Notice of Assessment will notify you of any further actions that are required, such as payment. Keep this assessment for your records, as you will likely have to refer to your assessment while conducting future business with the CRA. Businesses and individuals who file tax returns with the CRA will always receive a notice. Some of the more common Notice of Assessments received are for Personal Tax (T1), Corporate Tax (T2), and HST/GST filings.
If you receive a letter stating that the CRA will be conducting a review of your tax return, don’t panic. According to the CRA website, “…the CRA conducts a number of review activities that promote awareness of and compliance with the laws it administers. These reviews are an important part of the compliance activities we undertake in order to maintain the Canadian public’s confidence in as well as the integrity of the Canadian tax system.” In other words, if the CRA thinks you’ve made a simple error on your tax return, they will ensure that you fix it and understand how to prevent making the same mistake in the future. Reviews are not audits. In the first few years of owning a business, reviews might be more common until you gain more knowledge and experience.
The word audit has been known to strike fear into the hearts of taxpayers—mostly because no one likes to feel like the government is accusing them of a wrongdoing. The truth is that unless there is a serious discrepancy or blunder on your tax return, audits are rare. The CRA selects business accounts to audit based on several factors which could include how the information they have on file relates to your tax returns, potential tax-return errors, or signs of non-compliance. If you’ve been audited, a CRA tax auditor will contact you to begin the investigation that usually happens in your place of business. A more detailed description of the audit selection process can be found on the CRA’s website here.
There’s a reason that everybody hates to be audited. Tax audits can be long, arduous, and costly affairs, which is why it’s so important to keep detailed records of all your financial transactions and to consult the professionals for your year-end preparation.
Contact Clarified Accounting
If you receive an audit or review of your business, we’re here to help. Contact Clarified Accounting for simplified accounting services that are designed to assist start-ups and new companies with a better understanding of the tax-filing process.