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Book Excerpt

The audit: How to survive a visit from the taxman Add to ...

A field audit typically involves a tax auditor official actually visiting your premises and reviewing your records on site.

They will normally contact you to set up a mutually convenient time and will typically review more than one year at a time. Alternatively, if your business is relatively small, they may request that you bring your records to them and they will conduct their audit at their office instead of your office.

To minimize your disruption you should enquire up front what records they wish to review and what information they will require. Having this information ready for when they arrive can speed up their audit and save you time and money.

Additionally, if you have an accountant, you might suggest that the tax official perform their audit at your accountants office, if everyone is agreeable. This will minimize your disruption. As well it may help to have a trained, objective party answer the tax auditor's questions on your behalf.

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Tax Beater

Recommend having Canada Revenue Agency conduct their audit at your accountant's office to minimize disruption and possibly tax.

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The Reassessment

If, after completing their field audit, Canada Revenue Agency disagrees with your calculation of income, they will typically issue you a letter detailing the proposed adjustments to your tax return. They will also normally give you 30 days to respond to this letter, unless further time is requested. It is at this point that you should argue your case with the tax auditor. Nothing is final yet and if the issue is a matter of interpretation, you may be able to sway the auditors opinion or negotiate a better result. This is not the time to ignore the letter. This is your last chance to argue your case cheaply. From here on in, if you want to fight the tax department's decision, it will cost you a lot more money and time. So review the letter, discuss it with your tax coach and meet with the tax auditor to go over any areas with which you disagree.

Once the issues contained in the proposed adjustments letter are either agreed with or you and the auditor agree to disagree, a Notice of Reassessment is issued. The notice of reassessment will indicate the changes to the income and deduction numbers as appropriate and it will show the new tax calculation, any interest and penalties owing and the total tax owing to the government or to be refunded. If more than one taxation year is being reassessed, then typically the balance owing or refunded will be carried forward from year to year so that the most recent notice of reassessment's balance owing or refund will represent accumulated balances of all the years being assessed.

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Tax Beater

Save time and money by reviewing in detail Canada Revenue Agency's proposed adjustments.

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What If I Disagree with the Notice of Reassessment?

There are occasions when Canada Revenue Agency will not issue you a letter of proposed adjustments. For example, this will be the case if they review your tax return and find that you forgot to include a T5 or T4 slip. In these cases, they will just issue you a notice of reassessment, without warning.

If you disagree with a notice of reassessment issued to you that was either received after an audit where you have already met with the tax department or issued to you unannounced, you have two possible responses. If it is an obvious error by the tax department the best thing to do is call them and explain why you feel the notice of reassessment is incorrect. It may be a simple mistake which a quick phone call can easily solve.

If, on the other hand, the issue is not an obvious error but more a matter of a difference in interpretation, then a quick phone call is not likely to help. Instead, your next option is to file a Notice of Objection. The notice of objection is simply a letter that you write to the Chief of Appeals of your local district taxation office. In the letter you provide details as to why you disagree with the notice of assessment or reassessment as applicable. At one time you were required to complete form T400A when you wanted to file a notice of objection. This is no longer required, however, it may be advisable. By completing form T400A you will ensure that you have all of the pertinent information and Canada Revenue Agency will know for sure that you wish to begin the formal appeals process.

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