Tax audits are performed by the Canada Revenue Agency (“CRA”) or Revenu Québec (“RQ”) on a regular basis to ensure the integrity of the tax system.
Tax audits are carried out to confirm that taxpayers have correctly reported their income. The scope of a tax audit is generally limited to one or more specific issue(s) or taxation year(s), although that may change, depending on what is uncovered during the audit (i.e. a decision may be made to expand the scope of the audit).
A tax audit starts with an initial communication from the CRA/RQ informing you that you are under audit. The audit generally takes place at your home or place of business (“on-site audit” or “field audit”), but can also be conducted at a CRA office (“office audit” or “desk audit”) when the issue involved is a simple one.
Generally, you should try to collaborate with the auditor. Although you may feel scrutinized and under attack, there generally is nothing personal about the audit process. By maintaining a professional relationship with the auditor, the latter may be more receptive to what you have to say.
You should always consider the possibility that you may be reassessed and that you may have to go to trial. Therefore, it is important to document what happened during the course of the audit and put things in writing to avoid any possible misunderstandings.
Once the audit completed, the auditor will generally send you a proposal letter. The proposal letter will state how the auditor intends to reassess you and the grounds for doing so. You will then be given 30 days to respond. If you do not respond or if you cannot convince the auditor to change his position, a notice of reassessment will be issued. To dispute the reassessment, you will have to file a notice of objection within 90 days.