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The Canada Revenue Agency’s (the “CRA”) audit process is a mechanism to ensure 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 through a letter. This letter will specify the tax years under review and lists the documents and questions required from the taxpayer. Usually this letter will give us a good understanding of what the CRA is looking for, so that we can plan accordingly.

  2. Document/Information Submission: The taxpayer responds by submitting the requested documents along with any additional supporting evidence to address the CRA’s inquiry.

  3. Proposal Letter: The CRA may issue a Proposal Letter. This document outline’s the CRA’s findings and makes proposals with respect to the tax years under audit. This letter is not final and can be contested.

  4. Taxpayer’s Response to Proposal Letter: Taxpayers have the opportunity to 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 several ways:

    • No Change: The audit confirms the accuracy of the original tax filings, and no changes are made.

    • Adjustment: The CRA adjusts the amounts reported, which might result in additional taxes owed. In this case, the Minister of National Revenue (the “Minister”) will issue 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 and Extension of Time is often granted, but this is not guaranteed.
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