The CRA has a risk-assessment department dedicated to identifying “high risk” businesses for non-compliance. When a business is flagged as high risk, a CRA officer will review the necessary information to determine if an audit is required.
If it is determined that an audit is necessary, they will contact your business by phone and via letter confirming the details of the audit. The audit typically occurs at the place of your business. With respect to relevant documents, the auditor will ask for:
- Business records such as ledgers, journals, invoices and bank statements; and/or;
- Person records of the business owner such as personal accounts, mortgages and credit card statements; and/or;
- Personal records of other individuals related to the business, such as marital status, partnership and partnerships agreements, shareholders, investors etc.
The length of the audit process is difficult to predict and is determined by a number of factors. For instance, if the auditor experiences difficulties obtaining records from your business or some records are nowhere to be found, this will result in a longer audit process. The auditor in charge may also need to consult with the CRA on certain issues, leading to further delays. Therefore, it is essential to always cooperate with the audit process and do your best to provide all required documents. If you are unsure whether you need to produce a document, you should consult with a tax lawyer.
After a business audit, the auditor will provide you with a summary. This conclusion will either state that nothing further needs to be done and the audit process is complete, or it may state that several changes need to be made to the business’s tax returns. If this is the case, you will have 30 days to respond. If you disagree with the auditor’s findings, you have the right to appeal (see CRA website for information regarding appealing a business audit).