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Life Style Audits – Quite Evasive
3-11-2014
The topic of lifestyle audits is hot with CRA. A nightmare for some taxpayers as I understand CRA may (or, will) query and closely investigate every aspect of your financial worth, spending habits and the manner in which you live. If you are perceived as living beyond your reported income means, it's a flag for further investigation.
According to the Canada Revenue Agency (CRA), a tax audit is the “examination of taxpayers’ books and records to determine accurately the taxes, interest and penalties payable under the law.” In other words, a tax audit is the government’s way of double checking the tax filings made by Canadians to make sure the taxes were reported accurately and honestly. The CRA can audit GST/HST tax returns, income tax returns, excise taxes, and payroll documentation.
The Canada Revenue Agency performs tax audits to help ensure a “self-assessment tax system” where taxpayers are compelled to accurately and honestly declare their taxes under the risk of being audited by the CRA and having various penalties, including criminal prosecution, applied for inaccurate tax filings. The Canada Revenue Agency maintains that an effective self-assessment tax system where Canadians voluntarily follow the tax laws can only be achieved via a “vigilant and continuous inspection of returns.” In other words, the CRA asserts that without the threat of the Canadian government auditing the tax filings made by taxpayers, the tax system would be rendered ineffective. The CRA also states that the one-on-one contact with an agent of the Canada Revenue Agency affords the opportunity for Canadians to get a more personalized view of the tax system and helps to create an environment where taxpayers conclude that it is the responsibility of every Canadian to contribute their share to the Canadian tax system.
Audits and How to Prevent Them
A great strategy to help avoid an audit is to essentially become “audit proof.” Consider having your Tax Representative conduct a “friendly audit.” Have them put on their TaxMan hat and act as if they actually are an auditor. They need to visit your place of business where they get the guide tour of the operations, conduct a review of your financial activities, bookkeeping and record keeping procedures, and accounting practices to uncover and correct sensitive areas before they are discovered in a CRA audit.
Whether the CRA interest is for a desk audit or a field audit, realize that just because they have contacted you does not mean you have done anything wrong. “Audit selections are generally made according to a computer model that selects returns based on how dissimilar they are from a national norm.
Footnotes: Footnotes: This column is presented as a general source of information only and is not intended as a solicitation for business. It is always recommended that you consult a qualified tax professional before embarking on any of the suggestions outlined above. Mohammed Yasin, CGA, is the principal of M. Yasin & Co. Inc., Certified General Accountants and has offices in Vancouver & Surrey,B.C. He is also A Member of Muslim Business Council of B.C. For more information on this topic or any other taxation matter
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