Audit Triggers

Why am I being audited?

There is absolutely no way to prevent being audited by the Canada Revenue Agency. But there are some steps that you can take to reduce your chances of being targeted by the CRA.
 
Following are some of the tax audit triggers that National Tax Service can help you to avoid:

  1. Matching GST/HST revenue to reported sales
  2. When GST/HST collected do not closely align with reported sales revenue an audit may be initiated. To be blunt, failing to report and submit an amount less than what the CRA expects will lead to an audit.

  3. Industry ‘norms’
  4. Businesses in the same industry are compared to each other for purposes of determining whether certain expenses and/or margins show a large discrepancy versus the industry average. CRA computers search out those falling outside the accepted norms for tax audits.

  5. Sales taxes
  6. Some businesses do not properly collect and/or remit the sales taxes they have collected. CRA auditors are always on the lookout for under-reported revenues and subsequent tax skimming. It is imperative you keep proper records for the CRA to review.

  7. Purchase of large assets
  8. A GST/HST audit may result due to the purchase of a large asset that results in a larger than normal refund.

  9. Purchase of large assets
  10. A GST/HST audit may result due to the purchase of a large asset that results in a larger than normal refund.

  11. Business Activity Questionnaires
  12. In the course of their investigation CRA employees may request that a questionnaire be completed. It is strongly recommended that you do not complete such a request prior to obtaining proper counsel.

  13. Repeat losses
  14. Individuals and businesses that repeatedly claim losses become audit targets for the CRA. Proper tax planning and supporting documentation before the fact are the twin keys to free yourself from an otherwise unavoidable reassessment.

  15. Self-employed individuals
  16. Most often are so busy taking care of their clients that they don’t have the time to track their expenditures and properly balance their books. As a result even an inexperienced CRA auditor will have no problem finding expenses to challenge and deny. Take the time to find an experienced representative to maintain your records.

  17. Responding to CRA correspondence
  18. An inappropriate response to a CRA letter could open the door for a review of your records. Be careful how you answer their queries and do not be afraid to seek out a professional opinion.

  19. Unscrupulous tax preparers
  20. To attract clients some tax preparers will promise large refunds. However they generate the large refund by claiming unsubstantiated expenses or false charitable receipts among other means. When you are caught you will have to pay such amounts AND the penalty and interest. If it sounds too good to be true then it is.

  21. Repeat tax audits
  22. A past audit that turns up discrepancies and unpaid amounts will result in more audits to ensure that your tax returns are being properly filed and the appropriate amount of tax has been remitted. The only way to protect yourself is by maintaining audit proof records.

 
 
By having National Tax Service conduct a pre-tax audit review not only can we protect you from potential pitfalls but we may also find some credits or deductions that are commonly overlooked.