The dreaded audit has been somewhat replaced by the ‘compliance review’, which is a nicer way of saying we’re coming in to look at your books but won’t probe you as much. As I write this I have had a couple of clients go through a compliance review, both turned out to be nothing. What they are doing with the compliance review, especially for new businesses, is to ensure you’re doing things correctly, and are filing your remittances correct and on time. Canada Revenue Agency (CRA) is trying to ensure all businesses are compliant with their business remittance requirements before it gets too out of hand.
The first thing you’ll get from CRA is either a phone call or letter stating what they are reviewing and when. If it is a phone call, get them to fax you what was discussed in the conversation. I always find it’s best to do this step, as there are no mix-ups as to what was required.
The next thing is to call your bookkeeper or accountant and let them know CRA is doing a review. Follow this up with the letter you receive. I find it best to get the bookkeeper or accountant to deal with CRA in these situations, as they understand what reports CRA will need, and may have better access to the accounting system. Also, the bookkeeper/accountant will only give them what they ask, where you may give them too much information.
The auditor will examine books and records, documents, and information (collectively referred to as records) such as:
- Information available to the CRA (such as tax returns previously filed, credit bureau searches, or property database information);
- Your business records (such as ledgers, journals, invoices, receipts, contracts, and bank statements);
- Your personal records* (such as bank statements, mortgage documents, and credit card statements);
- The personal or business records of other individuals or entities not being audited (for example, a spouse, family members, corporations, partnerships, or a trust [settlor, beneficiary, and trustee]); and
- Adjustments made by your bookkeeper or accountant to arrive at income for tax purposes.
*Never give personal records unless absolutely asked, and push not to provide them. CRA will use any monies received in your personal account against you, even if it is a cheque from grandma.
You need to have this entire information ready for the review, and you may have to meet with your bookkeeper/accountant before the audit and go through everything. Don’t leave anything out that CRA has requested, and, of course, don’t give them any more than they ask.
Your best bet for surviving this review is to remain calm, deal with the auditor in a professional manner, and if you feel not being present is best then just have your bookkeeper/accountant meet with the auditor. There is no reason to panic, as this is nothing personal, you have been selected for review either as a random pick or that you are a relatively new business.