The
federal agency, Canada Revenue Agency, administers the relevant tax laws for
the Canadian government and several provinces. Due to the self-assessment
Canadian tax system, taxable individuals and corporations are legally compelled
to file income tax returns every year. You can use Canada
Income Tax Calculator to know the due amount for the
present year. However, the CRA does continuous and detailed inspections to keep
up with the tax system. These inspections can range from tax audits to
processing reviews.
In some
cases, the Canadian authority selects the taxpayer randomly. However, several
risk factors are triggering the audit process. Let’s first analyze the rules
for the self-employed person.
Will
the CRA send you an audit request?
Taxpayers
receiving T4 income are low-risk persons, and their tax has been withheld at
the source. They have a chance of receiving tax refunds. The CRA prefers these
low-risk taxpayers, and it mostly targets high-risk taxpayers.
In the
case of some self-employed individuals, there is a chance of incorrect
reporting of the tax. That is why the CRA targets this category of taxpayers. Underpayment
and inappropriate reporting are nothing new among self-employed persons.
Which
businesses have a high chance of getting audited?
Especially,
Small to Medium Business owners must be careful about business tax compliance.
Ensure that the revenue mentioned on the income tax form must correspond to the
amount stated on the GST/HST tax return. While the amount does not match, you
have to be prepared for the CRA audit.
Although
you may deduct some business expenses from income tax, you must be cautious.
Promotion, advertising, entertainment, meals, and travel costs can draw the
attention of CRA.
Moreover,
the CRA knows that some businesses having opportunities to take in cash may
properly report taxable income. Thus, while operating businesses like bars,
hair salons, and restaurants, you can anticipate income tax audits.
When CRA
has chosen your tax return for audit, the professional auditor will assess the
return. He will ask you to send relevant information, like business contracts,
bank statements, contracts, receipts, personal bank statements, credit card
statements, and mortgage documents.
During the
audit process, the auditor needs to check out the problem with your tax return.
The
process may have any of the two outcomes-
Reassessment-
While the auditor has found that you have to pay a higher tax amount, he will
consider reassessment. You will get a month to disagree/agree with this
reassessment.
No
reassessment- When the previous assessment has no error, there is no need for reassessment.
You will receive a letter and the audit process will be over.
How
much time does the CRA need for the audit?
You can
find a difference in time based on factors, like the overall scope of your tax
audit process, missing records, and details of your records.
These
are some important information about the income tax audit in Canada. To avoid
an audit and inappropriate calculation, you can use an Income
Tax Calculator Ontario. You will know about the
amount due for the tax.
