Save tax and hassles by negotiating the number of years for filing tax returns.
As well, penalties and interest may be waived if Canada Revenue Agency delayed in informing you of an amount owing, or if you were relying on material made available to the public and the material contained incorrect information.
If you receive incorrect advice from Canada Revenue Agency, you shouldn't be charged interest or penalties. If the tax department tells you that you don't have to make instalments and then later charges you late instalment interest, you should be able to get that interest reversed.
In addition, if Canada Revenue Agency makes an error in processing, interest and penalties should not be charged on the error. Or if the tax department delays in providing the necessary information to make the appropriate instalment or payments, you may be able to get the interest and penalty reversed.
One other situation where it may be possible to waive interest and penalties is in severe hardship cases. If you are having severe difficulty in paying your outstanding taxes, the government may waive the interest and penalties in order to recover the outstanding tax liability.
In summary, don't just give up if you have been assessed interest and penalties. In the right circumstances, you may be able to get them reversed.
What Are Some Do's and Don't's If I Get Audited?
So you've been selected for audit. If you have reported all of your income and have been reasonable with your business expenses, you should have nothing to worry about. They may have selected you at random, because of something unusual that is going on in your tax return or because of your industry.
Consider requesting Canada Revenue Agency to reverse interest and penalties.
Whatever the reason, in many cases there is nothing to fear. If you do get selected for audit here are some things you should and some things you should not do:
- Do respond promptly to Canada Revenue Agency phone calls and/or correspondence. Ignoring them will not make them go away. It will only make them more intolerant later when you try to negotiate with them.
- Do cooperate by providing them with the information they request. Ask them why they are requesting the information. The tax department does have the right to review your records to substantiate information you have reported on your tax return. However, they do not have a right to engage in a "fishing expedition."
- Do offer to have the tax auditor review your records at your accountant's office. This will reduce your disruption and may make the audit go smoother.
- Do review in detail their proposed adjustments. Tax auditors do make mistakes.
- Do attempt to negotiate on grey or interpretative matters.
- Where the rules are not black and white, the auditor may be willing to give a little, depending on the circumstances.
- Do seek professional tax help. Not all audits go smoothly and mistakes can be made. Misinterpretion of the facts is quite common. A tax professional can help you make sure the auditor understands your business and your transactions in the best possible light.
- Don't provide more information than requested unless it helps your case. As mentioned earlier, ask what the auditor needs and cooperate. But if they don't ask for some information, don't volunteer it unless it helps your case. There is no sense in making a career out of the audit of your business.
- Don't accept the word of the auditor as gospel. The auditor's interpretation of certain legislation may be right, but then again it may be wrong. Check with your tax coach or ask to speak with the auditor's supervisor if you feel that there may be an error.
- Don't delay in filing a notice of objection. You don't necessarily want to file a notice of objection if you have an open dialogue with the tax auditor on some contentious points. However, keep in mind your deadlines and make sure you file your objection before you run out of time.
The audit experience is rarely a pleasant one. However, it doesn't have to be painful. If you follow the rules and are not too aggressive, you can win this round with a little bit of luck.
Excerpted from 167 Tax Tips for Canadian Small Business. Copyright (c) 2009 by Stephen Thompson. Excerpted with permission of the publisher John Wiley & Sons Canada, Ltd.