Business audits are no fun. They can create intense feelings of stress and uneasiness. Your business could be audited as part of standard procedure or because of an unusual or suspicious tax return. Either way, if you’re receiving a business audit, you’ll want to do anything you can to keep the CRA on your good side and make the process as smooth as possible both for yourself and for the auditors. Here are a few tips you can take advantage of if you’re left in this sticky situation.
Keep Detailed Records
Business audits will look at your receipts and records. Whatever income and expenses you have declared and claimed on your income taxes should be recorded. You must keep all of your records for six years after submitting a tax return. The CRA auditors will want to be able to look up any individual transaction and see that you can verify them. The more detailed your records are, the easier this process is going to be.
All of your expenses should be documented with accompanying receipts, with a reference explaining how they were paid, such as with a note saying they were paid with cash or with a cheque number used to pay them. If your records are inconsistent or if anything you’ve reported doesn’t match your records, the auditors will have to proceed with a more in-depth investigation. If all of your records are in order, then the audit will be complete and you’ll be able to get back to your regular business routine.
What Will Be Checked?
In order to know which records to have on hand, you’ll need to know what the CRA will be looking for. To keep on the CRA’s good side, you’ll need to provide all original documentation, no photocopies. This can include receipts for business purchases, invoices, any cancelled cheques, and all of your bank statements. They’ll also look at your tax calculations and your bookkeeping and accounting programs.
If Your Records Are Incomplete
During business audits, bookkeeping irregularities and errors or incomplete records are your responsibility. The auditors will not do your bookkeeping for you to help you become compliant. The auditors will ask you to make any of the necessary corrections, recalculate your taxes correctly, or obtain the required receipts or other proof needed, which may mean you’ll have to make some trips to the bank or to your suppliers. The more incomplete your records are, the longer the audit will take, which won’t make the CRA happy.
Work with the CRA
Having a good attitude and being helpful during business audits can help you out along the way. The CRA auditors are just doing their job. If they believe your expenses aren’t deductible or they don’t believe you’ve demonstrated valid reasons for your claims, it’s best to work with them, rather than argue with them.
The audit can end in a few ways. The auditors might see that all of your records are in order and the process is completed without any issues that need to be resolved. Or, if discrepancies are noted, you’ll have to fix them. You may have misunderstood a tax regulation or made an honest mistake that must be rectified. There might be a credit or balance due. You’ll be notified by mail in at least thirty days and you’ll have to respond and either question or accept the finding of the audit.
Business audits don’t have to be so bad. If you have your documentation in order and work with the auditors throughout the process, it can be done in no time.