Audit

The Canada Revenue Agency’s (the “CRA”) audit process ensures tax compliance. The following is a general overview of how this process typically unfolds:

1. Initial Contact: The CRA notifies the taxpayer of an audit via an initial contact letter. This letter specifies the tax years under review and lists the documents the CRA is requesting the taxpayer provide and questions the CRA is requesting the taxpayer answer. This letter usually gives the taxpayer a good understanding of what the CRA is looking for, so it is important to read it carefully so that we can plan appropriately.
   
   
2. Document/Information Submission: The taxpayer responds to the CRA audit letter. This can be by answering the requested questions and by providing the requested documents. However, as CRA audits tend to cast a wide net, it is not always necessary to provide everything requested by the CRA.
   
   
   
3. Proposal Letter: The CRA may issue a Proposal Letter. This document outlines the CRA’s findings and makes a proposal regarding the tax years under audit. This letter is not final and can be contested via additional submissions.
   
   
4. Taxpayer’s Response to Proposal Letter: Taxpayers can make further submissions to dispute the Proposal Letter, providing substantive legal arguments and additional documentation to support their case.
   
   
5. Conclusion of the Audit: The audit can end in one of two ways:
   
   
   • No Change: The audit confirms the accuracy of the original tax filings, and no changes are made.
     
     
   • Adjustment: The CRA adjusts the returns for the period under review, which might result in additional taxes owed. In this case, the Minister of National Revenue (the “Minister”) issues a Notice of Reassessment. A taxpayer can dispute the Notice of Reassessment by filing a Notice of Objection within 90 days, or making an Application for an Extension of Time within 1 year after the 90 days have expired. An Application for an Extension of Time is often granted, but this is not guaranteed.