The best way for you to prepare for a tax audit is to keep proper books and records over the years so that when you are audited you have the information and supporting documents ready. The next step is for you to inquire about the scope of the audit and gain a better understanding of what the auditor is looking for. Knowing what the audit is about will allow you to put things in context.
Under the Income Tax Act, taxpayers must self-assess by identifying, computing and reporting the amounts that are subject to tax under the Act. However, there is a distinction between “self-assessing” and “self-auditing.” While taxpayers must self-assess, they are not required to self-audit.
What does this mean concretely? It means that when you are faced with an issue that is reasonably open for debate, you can file your tax return using the basis most favourable to you. It is generally not acceptable for an auditor to ask you to reveal aspects of your tax position that are “at risk” (i.e. reveal your weak spots). It’s for the auditor to find that out for himself.
Last updated: June 16, 2018