Expert Tax Representation in Dealing with the Canada Revenue Agency (CRA)

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CRA – AUDIT, COLLECTIONS & APPEALS

Below is a brief overview of Canada Revenue Agency (CRA) Audit, Collections, and Appeals departments and how they operate.

AUDIT:

Selecting files for business audits:

The CRA’s Business Intelligence & Quality Assurance (BIQA) section selects files to audit based on indicators of non-compliance.

Files are then passed on to the Audit Section which then assigns the files to individual auditors.

If you are selected for an audit (Income Tax Audit, GST Audit, or Payroll Audit) call your representative immediately.  Before speaking to CRA you and your representative should jointly review the audit engagement letter and prepare.  Having the proper tax audit help at the beginning of the audit will make the process more smooth and subject to less surprises.

How does the CRA conduct business audits?

A CRA auditor will contact you to begin the audit process and inform you of where the audit will take place. Normally, it is expected that the audit take place at your place of business, but in certain situations the audit may be conducted at a CRA office.

What CRA examines during an audit?

The auditor will examine books and records, documents, and information such as:

  • information available to the CRA (such as tax returns previously filed, credit bureau searches, or property database information);

  • your business records (such as ledgers, journals, invoices, receipts, contracts, and bank statements);
  • your personal records (such as bank statements, mortgage documents, and credit card statements);
  • your accounting records and those maintained by your accountant.

During an audit, the auditor will identify issues and discuss them with you.

Once the auditor completes the examination of the records provided, he will propose adjustments to your tax returns, if any.

If you disagree with the proposal, you can contact the auditor to try and resolve factual disagreements. The auditor is supposed to consider your explanations and respond to your questions about the proposal. If issues remain unresolved, you can contact the auditor’s team leader to discuss them further.

What happens at the end of the audit?

At the end of the audit, a final letter will be sent to you and one of three things will occur:

  • no adjustments will be made to your previous assessment;
  • an adjustment resulting in more tax will be made (reassessment) and you will have a balance owing; or
  • an adjustment resulting in less tax will be made (reassessment) and you will be entitled to a refund (this rarely happens and auditors will usually close the file before a refund is issued).

What if I don’t agree with the reassessment?

If you disagree with the reassessment, you have the right to Appeal.  See details of the Appeal process below.

Remember, the auditor is not always correct and appealing an audit is quite common.  For example, auditor’s often complete audits prematurely due to pressure to complete the audit within their budgeted hours.

How much time does it take to complete a business audit?

Factors that influence the time it takes to finish an audit include the state of the records, the size and complexity of the business, potential delays for missing records; the auditor’s workload and other unforeseen circumstances.

Your rights and responsibilities

What are your rights?

Your rights and what you can expect when you deal with the CRA are explained in Guide RC17, Taxpayer Bill of Rights Guide: Understanding your rights as a taxpayer.

You also have the right to file a complaint if you are not satisfied with the service you received from the CRA.

What are your responsibilities?

By law, you must keep adequate books and records to determine your tax obligations and your entitlements. Generally, books and records must be kept for a minimum of six years.

If you use a computer for your accounting records, you must keep your books and records in an electronically readable format, even if you also keep them on paper.

TAX COLLECTIONS:

  • Debts the Canada Revenue Agency collects
    The CRA collects amounts owed for tax programs and other government programs (ex. outstanding student loans).
  • If you want to pay in full
    Pay your debt now to avoid interest and other financial and legal consequences. CRA does not like to be lender and will encourage you to borrow funds to pay your tax debt.
  • If you cannot pay in full now
    Make a payment arrangement, and get information about taxpayer relief provisions or financial hardship provisions. If you are unable to pay in full and cannot get a loan to pay your tax debt, CRA may accept payment arrangement.  Also, if you are unable to pay your debt due to reasons beyond your control, there may be relief or hardship provisions that may decrease your interest costs.
  • If you refuse to pay or to cooperate with the Canada Revenue Agency
    If you do not pay your debt in full and on time, the CRA can use a variety of tools to recover the money you owe

Remember, if you do not pay your tax debt your account will be transferred to a Tax Collections Officer.  The officer will then ask you to voluntarily pay the tax debt or they will commence legal action to collect on the amounts owed to CRA.  If you feel you cannot pay the whole amount you should have your representative arrange a payment plan suitable to you and CRA.  Failure to contact CRA can lead to actions such as freezing your company and personal bank accounts; garnishing of your wages or payables; liens on your properties and even extreme actions such as the forced sale of your assets and properties.

TAX APPEALS:

The mandate of Appeals is to provide a fair and impartial process to resolve disputes, service complaints and requests for relief arising from decisions made under the legislation and programs administered, and services provided by the Canada Revenue Agency (CRA).

While CRA likes to characterize Appeals as a separate body, the fact of the matter is all employees of Appeals are employees of CRA.  Also, it is quite common for Audit employees to work on in Appeals on assignment.

Filing an objection

If you think CRA has misinterpreted the facts or applied the law incorrectly, you have the right to object to:

  • tax assessments and reassessment indicating taxes are owed; or
  • determinations or redeterminations such as the good and services tax / harmonized sales tax (GST/HST) credit, the Canada child tax credit and the disability tax credit.

Time limits

If you are an individual or corporation the time limit for filing an objection is whichever of the following two dates is later:

  • one year after the date of the return’s filing deadline; or
  • 90 days after the day we sent the notice of assessment.

Limitations on your right to object

In most cases, you can object to any item in a reassessment. However, in a few situations, you can only object to the matter that caused the reassessment. The Appeals Division will tell you if limitations apply.

Reviewing your objection

CRA will review your objection and if necessary contact you or your representative to discuss the matter.

To ensure that you or your representative understand the reasons for the assessment and to provide an open exchange of information, CRA can provide you with the documents related to the issues in dispute. In addition, CRA will inform you of any discussions they have had with assessing area representatives about your disputed assessment.  After considering all the facts, the Chief of Appeals or another authorized officer will make the final decision about your assessment. If the officer agrees with you in whole or in part, CRA will adjust your tax return and send you a notice of reassessment. However, if the officer disagrees, CRA will send you a notice to confirm the assessment was correct.

Appealing to the Tax Court of Canada

If you do not agree with the decision reached by Appeals, you can appeal to the Tax Court of Canada.

The Tax Court of Canada is an independent court of law that regularly conducts hearings in major centres across Canada.

Remember, when dealing with CRA it’s best to have someone who knows yours, and CRA’s, rights and responsibilities.  Whether you need tax audit help, help negotiate your tax debt with collections, or filing an appeal you should always have a representative knowledgeable with CRA.