Canada Revenue Audit Playbook – Tips and Strategies for Defending Tax Audits

No one wants to be the subject of a CRA tax audit. In recent years the Canada Revenue Agency (CRA) has doubled the number of auditors it employs. In addition to income tax and GST/HST audits, the CRA also audits specific payment programs such as COVID-19 benefits commonly referred to as the CERB and the CEWS.

Based on this, I have decided to share my Canada Revenue Audit Playbook.  This is a simple guide intended to help you manage a CRA tax audit.  The information is provided in light of the pending CERB/CEWS audits, but it is equally relevant to any other audits conducted by the CRA (GST/HST, Excise Tax, Income Tax) or any other tax authority for that matter.

CRA Business Audit Playbook

Here are the 6 steps that I think are fundamental to properly managing your Canada revenue audit.

Step #1 – Authorize a Particular Individual to Lead the Audit.

Most people don’t enjoy the thought of managing a tax audit but someone needs to be responsible to play the lead role for the audit.  Ensure you pick someone who can handle it.  Make sure they are aware they own the task of managing the audit and that you are counting on them to do a good job.  Finally, and a point that is often missed – ensure the rest of your staff are informed that they are not authorized to speak to the auditor.  While this might seem harsh – the point is to ensure a consistent single message is delivered on behalf of your organization – you don’t need employees making inaccurate or ill-informed comments to the CRA.

Step #2 – Always Respond in a Timely Manner

Attempting to ‘slow play’ an audit does not typically work well.  The longer an audit takes to complete, the higher the expectation that the auditor must ‘find something’ to re-assess.  Instead of slow playing the audit, ask auditors to put any requests in writing (including any follow-up requests for information).  Should you feel there is a deadline that can not be met, raise this issue with the auditor as early in the process as possible, request an extension of the deadline and highlight any reasons to justify the request.

Step #3 – Respond in Writing

In step #2 you asked to auditor to provide any requests in writing.  It is equally important that you provide your answers in writing as well.  This should hopefully minimize any confusion about what answers you have (or have not) provided and should ensure there is no confusion about what was meant.  Written responses can be provided to the auditor via fax, or can be uploaded to the auditor through the CRA’s online portal. The CRA now has the authority to compel oral answers to questions, but it still makes sense to ensure responses and reduced to writing, to ensure there is no confusion as to ‘what was said’.

Step #4 – Ensure All Queries are Clearly Answered

Don’t assume that the auditor is well versed in how your business operates, or the standard practices of your industry.  You may need to use plain language to describe aspects of your operations so the auditor can understand your business.  Also – review all information and/or working papers you are providing to ensure that you are providing clear answers.  What may be apparent to your accounting team may not make sense to the auditor.  Be cautious in providing information that was not specifically requested.

Step #5 – Do everything within your power to resolve matters at the audit stage.

I can’t stress this point enough.  Often taxpayers grow frustrated with the audit process, and give up during the audit, assuming that they (or their accountants or lawyers) can make further representations once the auditor has completed the audit.  While there are formal processes for Objecting to Audit findings – often these proceedings are time consuming and expensive.  Put as much effort as humanly possible into resolving the issues during the audit with the auditor, its always better to resolve the matter at this level where possible.

Step #6 – Don’t be afraid to request a discussion with an Auditors Lead, or to bring in your own outside support.

Many taxpayers don’t realize that you have the ability to speak to the Auditor’s supervisor if you feel that is appropriate.  This is particularly useful in situations where you feel the auditor is not properly applying the tax legislation, or conducting themselves in an inappropriate manner.  If you still can’t get resolution with the Auditor’s supervisor – it may be time to bring in your own advisors (if you have not done so already).

Concluding Comment:

I hope you find the above to be useful.  I have tried to provide some practical advice to help with your audit process – without getting into the weeds of the various technical issues that could arise.  If you are not comfortable handling your audit or feel there are issues that may become problematic, don’t hesitate to discuss your situation with a professional tax attorney as early in the process as possible.  Rarely do I hear a taxpayer complain that they engaged me too early, but all too often I hear “ I only wish I had called you sooner”.

And of course the Disclaimer:

As a final comment the lawyer in me can’t help but to note that the content on this web site is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any specific legal issues. I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website. Finally, accessing the information on my website does not create a lawyer-client relationship.

Jeremy

February 23, 2023 (originally drafted September 1, 2020).