The Financial Post recently published an article titled “Audit check-up: What’s on the taxman’s radar?” For most of us the thought of an audit by the Canada Revenue Agency (CRA) conjures up feelings akin to dread and despair. Not because we’re hiding anything, but because it is never fun or easy to have every area of our personal or business finances scrutinized by the tax department. Never!
But with tax season now behind us, but still fresh in our minds, it makes sense to make sure we are prepared for an eventual audit by having all of the records we may need easily available and ready to go for that uncertain day.
The Financial Post article noted that for recent CRA audits, “the focus has been on private enterprise issues that affect payroll, employee taxable benefits, management fees and shareholder debt.”
With regard to shareholder debt, the article states: “CRA auditors are also on the alert for loans corporations make to their shareholders or family members of shareholders. CRA looks at these arrangements carefully to satisfy itself that they are not shareholder appropriations that, in some cases, should be included in the shareholder’s income and subject to tax.” And, “because the affairs of private corporations and their shareholders are often intertwined, CRA auditors continue to review many expense categories to ensure no personal expenses are being claimed in the business and that shareholder withdrawals from the business are being appropriately taxed.
Earlier in the year, The Toronto Globe and Mail contained the following advice for those who are audited:
If you’re selected for an audit, it is in your best interest to:
- co-operate with the auditor,
- answer all questions respectfully, and
- provide any information and supporting documents requested on a timely basis.
You may also want to get advice from a tax professional, who can act as your representative.
Tip: Keep all your tax information and receipts for 6 years. If you’re audited, providing the CRA with the necessary supporting documents may minimize the impact of the audit.