Tax audit

• Conducted by the Canada Revenue Agency or Revenu Québec, often as a result of a simple data cross-check
• Often focuses on sales taxes (GST/QST), expenses you’ve deducted from your taxes, and payroll withholdings for your employees
• Keep all your proofs of purchase (invoices, receipts) for at least six years
• You have the right to challenge the outcome: first by filing an objection, then an appeal if necessary
• The tax authorities can generally go back 3 years after the notice of assessment (often 4 years for a corporation), with no time limit in cases of false reporting

Receiving a notice of audit is not an accusation: every year, the CRA and Revenu Québec audit thousands of businesses, often simply because a number doesn’t match their records. Many audits stem from a simple cross-check: the amounts in a T4A form or a T5018 receipts from the government don’t match your reported income. What makes all the difference is how organized your documents are. Imagine two boxes of receipts: one neatly organized by month, the other in a jumble. The first makes the audit a simple formality; the second opens the door to reassessed taxes to your disadvantage, with interest and penalties. In practical terms, the government can generally review your tax returns up to 3 years after the notice of assessment (often 4 years for a corporation), and indefinitely if it suspects a false declaration: that’s why you should keep all your supporting documents for at least six years, and why proper tax invoicing (small supplier threshold (properly documented) is just as important. The process of an audit is described by the Canada Revenue Agency. If you receive a notice, don’t face it alone. Bankeo will connect you, for free, with a vetted accountant or CPA who knows exactly what to provide, and we’ll be right by your side.

What exactly does a tax audit entail?

It’s an audit: the government (the CRA or Revenu Québec) asks you to prove, with supporting documents, that the amounts listed on your tax returns are accurate. They may review your invoices, bank statements, and business mileage records. This can be done by mail for a single issue, or in person for a full audit. Being selected does not mean you have committed tax fraud.

How many years back can the government go?

In general, the tax authority can review and adjust your taxes up to three years after the first notice of assessment (the document confirming your taxes for the year), and sometimes up to four years for certain incorporated businesses. But if the tax authority suspects a deliberate misstatement, this time limit no longer applies, and it can go back much further. That’s why you should keep your records for at least six years.

What should I do when I receive a notice of audit?

Stay calm, take precise notes of what’s being asked of you, and have an accountant act as your official representative to handle the case before sending anything. Provide only what is requested, nothing more, and do so by the deadline. Don’t have an accountant? Bankeo will connect you with one for free, a verified accountant or CPA experienced in handling these audits, and we’ll be right there to support you.