By now, you’ve heard so many times that anyone can get audited by the CRA. That’s true, but it’s missing the point. Anyone can get struck by lightning. What matters most is knowing what situations make your chances unnecessarily high.
If, as a business owner, you’ve spent years feeling generally anxious about the inevitability of a CRA audit, put your mind at ease. This guide will reveal who the CRA chooses to audit and what circumstances make you a target for the tax authorities.
Who Gets Audited By The CRA?
The CRA decides its audit targets based on a risk assessment — in plain words, how much they suspect your filings could include discrepancies. For instance, if your filings are super complex, shockingly different from last year’s, or your previous submissions have had mistakes, you’re more likely to get audited.
Additionally, the CRA might focus on a specific cluster of businesses (or individuals) for audits as part of a campaign to raise compliance within that group. The CRA sometimes audits someone with financial ties to an individual already under audit, such as business partners and spouses.
If serious allegations arise, the CRA can even start a criminal investigation. Before doing so, they gather information from multiple origins, including:
- Previous audit findings and other evidence from the CRA.
- Tips reported by individuals through the CRA’s informant leads program.
- Data provided by various law enforcement agencies.
- Information gleaned from publicly available sources like the media.
The CRA is especially likely to investigate cases that involve:
- People dodging taxes using finances in other countries.
- People who carefully plan tax schemes to cheat the government.
- Tax evasion tied to money laundering or terrorism.
- Extensive refusal to pay income tax or GST/HST.
At that point, the CRA will get involved with other law agencies and use search warrants plus interviews with witnesses. That probably ends with a few people’s prosecutions in court.
When Do CRA Audits Occur?
It’s worth knowing the difference between a CRA audit and a review.
If there’s a straightforward mistake in your tax filings, the CRA may do a review. In a review, they basically double-check how much money you got, what you’re allowed to take off, and any discounts you should get for that one year. If they see a problem, they might ask for documentation or simply change the amount you’ll receive in your refund.
An audit is when the government looks really closely at your tax returns (typically several of them). They decide to do this for a few reasons, like:
- If they think there might be a lot of mistakes in your tax returns.
- If it seems like you’re not paying all the taxes you should.
- If your info doesn’t match up with what similar earners are reporting.
- If your financial records match up with red flags from similar CRA audits.
- If they get a tip from someone who says you’re not playing by tax rules.
CRA Audits: How Far Back Can They Investigate?
Usually, the CRA can check your tax return up to four years after you’ve filed it. But if they sense something suspicious like fraud or false information, they can look even further back, and there’s no limit on how far. Hence, it’s a good idea to hold onto your financial records for about six or seven years.
Getting Audited By The CRA: Frequently Asked Question
Can The CRA Audit A Dissolved Company?
Yes. Dissolution is not a loophole to avoid tax assessment. In several cases, a dissolved company has been revived by the CRA just so a debt can be collected. If you’re in tax trouble, there is a way to put it all behind you.
Our financial law experts do free consultations; contact them today, share your concerns, and receive a practical plan where we reconcile you with the CRA.
