Got an audit letter from CRA? How to respond the right way

Video Transcript: What to do when you get a CRA audit letter

So if that audit letter arrives in the mail. What should you do?

Open the CRA audit letter immediately

This may sound silly, but open the letter, or the e-mail, that you’ve received. It may sound odd, but a lot of those audit letters have tight timelines for responses, and I know some people don’t like opening the mail from Revenue Canada. They’re scared. I’ve seen a lot of people afraid of that, missing deadlines and opportunities as a result. If you know you’re really fearful of it, get to your accountant. They can open it. They’ve seen this before.

Start the response promptly

In my case, we had the audit letter open, response started within a few days of receiving it, and again. I won’t pretend to have enjoyed it, but it was a rather methodical process. We stayed calm. I know, it’s like getting called down to the principal’s office, if you will, but don’t panic. Many of these letters are very routine. And again, mine, while inconvenient, once I reviewed what was needed and my wife, Robin, who handles all of our bookkeeping, pulled up the records, it was, relatively speaking, a straightforward response. It was relatively easy.

Stay involved in the process

Stay involved…even if your accountant is leading the conversation. You want to know the Reader’s Digest version of what’s going on. A little easier for me of course in my audit. And it’s not like this was my first audit, whether for myself personally, family members and obviously clients.

Bring in your accountant early

Bring in your accountant as soon as you can. They’ll be able to help navigate the process and avoid making mistakes that can lead to perhaps a more broad audit or conclusion that becomes much more expensive for you. They’re trained in these things. They have the experience. If you’ve been using the wrong word in the response, it can cause trouble.

Avoid mistakes in communication

I go back to many years ago and an example. And it caused that individual while we were ultimately able to help them. There’s another accountant’s client that came to me for advice. It would have been a lot faster. A lot less expensive, if they came to us the first time.

Keep your communication professional

Keep communications clear and professional. It’s easy to get upset with the audit. It’s easy to get upset with an auditor. They can escalate. Those comments aren’t helping you, but your accountant who’s going to be a little bit more neutral, can provide that guidance. By responding professionally to only what they’re asking. It makes it easy for the auditor to see what they’re looking for. And potentially asking fewer questions. Not that you necessarily have something to hide, I don’t mean it that way, but I’m confident you have better things to do with your time.

Stay organized to avoid trouble

And of course, what is the best way to stay out of trouble in the first place? Be organized. Detailed records being worked on through the year as compared to once a year or after the end of the year. Understand your reporting obligations. Before you make the transaction, you get that professional advice early and not after.

Get advice before responding

And certainly with respect to the audit letter, get that advice up front as soon as you get it. Before, you’ve reached out to Revenue Canada. And yes, sometimes it’s very simple. Rather than simply looking for a receiver to donation receipt, you can take care of it. Let your accountant know.

My audit result

Fortunately, in my case, again, my audit turned out fine. The original tax return was assessed accurately, at least on our side of things.

I’m George Dube, saving the world from tax, one bow tie at a time®.

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Resources

For additional resources related to to the audit red flags on personal tax returns, and avoiding audits generally, see:

• Audit red flags on personal tax returns: How to avoid them
• Avoiding a CRA audit for your business: 4 ways to reduce your risk
• How long to keep tax records in Canada: What the CRA really expects

More questions?

Still have questions? I want to help you Do wonderful things®, so please contact me today.