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A tax audit is like getting hit by a car. You think it’ll never happen to you — until it does.
However, whereas getting hit by a car hurts — a lot — audits can actually be relatively painless.
The Canada Revenue Agency (CRA) starts an audit by sending a letter. (How very Canadian.) The letter will ask to setup a date for a visit, which means a meeting to rifle through your receipts, invoices and more. After that, typically, another letter, requesting yet more documents.
How do you survive? Be prepared: have as much information as possible on hand. The CRA can audit an individual within three years of their notice of assessment. To be sure, says Paul Keul, CFA, associate at S+C Partners LLP in Mississauga, Ontario, “keep documents for at least a year beyond that.”
But if you don’t have the necessary files, trust between you and your auditor becomes critical. Yes: trust. “Try to maintain good relationship with your auditor,” says Keul. “Often the auditor has discretion in how to deal with things… often we can negotiate minor issues away or, in some cases, reassessments can be structured in a way that minimizes interest.”
So turn the charm on: You might be able to talk yourself out of this one yet. At least, says Keul, be forthcoming and helpful — not adversarial.
Finally, although you may already be sweating the damage this will do to your pocketbook, it’s worth hiring an accountant. It would be easy, says Keul, to incriminate yourself by answering what sounds like an innocent question. By now, aren’t you already in enough trouble?
Image courtesy of Steve Snodgrass.