As an owner/managed business, the two most dreaded words are: tax audit. Just thinking about these words can cause many business owners to break into a cold sweat.

There’s really no need to panic—if an audit’s going to happen, it’s going to happen and there is nothing you can do to stop it. In fact, there’s an increased focus on tax compliance by the Canada Revenue Agency (CRA), which means your risk of being audited is higher than ever. Audits aren’t always ordered because you did something wrong; many are simply ordered at random based on verification programs, processing reviews, and data matching and examination programs. (Although some audits are ordered because a business sent up red flags that drew the CRA’s attention. One way to avoid drawing attention is by filing your taxes on time.)

If you get that audit letter, it doesn’t need to be a painful and anxiety-riddled process. An audit will go smoothly as long as you remember these three important rules.

Don’t ignore it. The absolute worst thing you can do when you receive a CRA audit letter is to drop it in a drawer and hope the issue will go away. It won’t. Instead, it will get worse—much worse. Without a response, CRA will continue to try to reach you by mail, by posting information in your CRA My Business Account, and by phoning you. Eventually, no response could result in your bank accounts being frozen, which is a much bigger mess to fix than dealing with an audit request.

Don’t speak with a CRA auditor yourself. Trouble often starts when someone takes on a CRA auditor by themselves. That’s because they are often tense, don’t know the right questions to ask or are too chatty. (Remember: the words ‘yes’ and ‘no’ are considered complete sentences and they shut down any possible fishing expeditions.) Have your accountant speak with the auditor on your behalf. An accountant knows what the auditor is looking for and how to answer each question appropriately.

Don’t panic. An audit is often a dispute over the application of a tax rule. It is not that you necessarily knowingly did something wrong, it is that the rules can be complex and now you need to prove specific claims. The best way to prepare for an audit is to always keep organized records. This means maintaining good bookkeeping habits (or hiring someone to do it for you). Whatever you do, don’t use the shoebox solution as it just leads to lost receipts and moments of panic.

Finally, while it is best to have an accountant handle a CRA audit, they can be fairly costly depending on the complexity. We’ve quickly seen bills run into the thousands of dollars in professional fees as a result of the time needed to dedicate to it. Many accounting firms, including SFD Professional Corporation, offer audit insurance for an annual fee to combat the additional costs related to compliance.

We offer Audit Shield Fee Waiver Service. Clients who participate in this service benefit from our professional fees being waived (up to a maximum limit) for responding to audits, reviews, or investigations directly in connection to a tax filing. The protection is retroactive and covers previous tax returns regardless of who prepared them. It covers T1 slip requests, GST reviews, payroll audits, corporate reviews, and more. Contact us for more details.