CRA Audits run wild in Canada and they are no random event.

June 11, 2010 by Dan White.

CRA Audits run wild in Canada and they are no random event.

Audits are cold calculating attacks on the Mom and Pop businesses across this land. Alberta, BC and Ontario being the top 3 audit hot spots.

Audits are at an all time high. CRA through data mining, snitch lines, press releases, more staff and targeted audit campaigns is creating a plethora of tax problems for small businesses in Canada. Tax problems can sink companies and CRA is usually ruthless in their approach to collecting taxes.

I have been saying that audits are not random for years and if you think logically about it, the idea of a random audit evaporates in to a cold hard reality of tax problems.  William V. Baker, commissioner and chief executive of the Canada Revenue Agency, stated; “There are no random audits,” “There’s always a reason.” CRA does not audit randomly with no reason. It just does not happen.

I can tell you the number one reason for getting audited is because CRA wants your money. The number one cause of audits is a poorly done set of books that result in a poorly done tax return. Garbage in is garbage out.

If you don’t want an audit, don’t cause one. Keep audit ready books. To prevent a financial disaster from hitting you, read more about audit ready bookkeeping, CRA behavior and about CRA tax audit problems at www.taxauditsolutions.ca

More about audits;

If your tax return is selected for audit, the CRA has identified some aspect of your return, be it a deduction claimed or an industry that it is focusing on. Now CRA is looking for a reason to audit… and you likely were computer flagged as a good tax problem prospect.

So once the audit begins, the audit being a cat and mouse game. You become the mouse… or maybe it is the cat versus rat in the hat game… or maybe it is the snake and the mongoose in a life or death battle… whatever tax problem game you are in… you better realize that CRA is not going to be kind nor are they going to be fair. You may think that you have nothing to hide. Ha!!! what is fair, does not matter, you may think you have nothing to hide, but unless you are the mongoose, you are going to pay with your financial life. Just as in the game of snake and Mongoose, your audit has to be a process of being careful or you could pay dearly.

In the cat and the rodents game, CRA will intimidate and go after every nickle they possibly can. If they know you will figuratively bit off the head of the serpent, they will treat you with respect and only go only for what is provably their share. This game can not be played by the average business owner in Canada.

Being that the businesses of this land do not keep audit ready books, CRA exploits this to a point where taxpayers just pay the juice to get rid of the tax problem that is in their face.

The audits are an incredibly stressful experience for people who do not realize how much they don’t know about what can go wrong in an audit. At the end of the audit, then they know what can go wrong and then it is much harder to fix things. Harder but not impossible. CRA will stonewall…. you just have to know how to smash stone walls.

Folding when you are right, is foolish because you just set yourself up as a good paying client of the tax man.

Should you disagree with the CRA’s findings, you have the right to object to your assessment, launch an appeal and, ultimately, have your day in court.

Filing a Notice of Objection is the first formal stage of disagreeing with your assessment if you fail to resolve your differences through informal discussions with your local tax services office.

The Notice of Objection must be in writing and must clearly set out the reasons why you’re objecting. The benefit of a formal objection is that the CRA will generally suspend any collection procedures they may have started until the appeal is resolved. This will depend on whether they have just cause to move quickly to “Protect their Interests.”

Each year, the appeals branch of the CRA, which is charged with the responsibility of resolving disputes between the CRA and taxpayers, handles between 50,000 and 70,000 objections. This number will grow now that thousands of provincial auditors will move to CRA to do HST audits starting in July 2010.

92% of these objections are resolved administratively, which means you have to fight hard to keep your money.

Once the audit is over about 8% of taxpayers choose to appeal to the Tax Court of Canada.

About 1/3 of the filed appeals end up in Tax Court, which means the taxpayer folded before court in 2/3 of the cases.

The remaining balance of appeals are settled before court or withdrawn by the taxpayer.

It is a level playing field in court and the odds are good you will win if you know what you are doing. Most people do not, and they need a tax representative to solve their tax problems.

Should you lose in Tax Court, you do have the right to go to the Federal Court of Appeal — but do not count on a reversal of fortune at that level. The odds are against you. I recommend that in the majority of times, tax court is the final decision. Take your tax problems and go home.

So in summary the Mom and Pop businesses of this country are under siege by CRA. Once targeted you are either going to fight like hell or you are going to get railroaded into a big tax problem bill.

Start by learning audit ready bookkeeping and don’t talk to CRA, get a representative before the audit even happens.

Dan White
www.taxauditsolutions.ca

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