tax-audit

Our business operation has not been audited for many years. Does that mean our tax preparer (TP) is doing good work?

Will you be able to stand a tax audit?

We focus on net income from businesses. Canada Revenue Agency (CRA) audits to collect additional taxes besides ones you pay based on your disclosures. Experience shows CRA expects each audit raise minimum $30,000. Many audits result in collecting hundreds of thousands of dollars. The collection includes penalties, interest (P&I) and additional taxes. Audits require them procure papers/ information, analyze information, identify missed and incorrect (M&I) disclosures and prepare formal reports etc. They cost much. Often M&I disclosures are apparent but CRA expects little collection; hence CRA does not audit the taxpayer —even for several years.

Remaining unaudited for years, some taxpayers conclude their tax preparer (TP) is doing great job. Maybe they had M&I disclosures but were not caught. When audits require them pay large additional taxes, they realize how unprofessional the work was. At such times most taxpayers go looking for new TPs. Others do so even before audits start; the old TPs want to neither defend bad work nor associate with its consequences and hence become unavailable. Do not blame just TP. You probably let him take shortcuts—so that he charges you less—and believed you will not be audited for many years—and for the year you will be, you would pay just additional taxes. You disregard the P&I payment, which maybe way more.

If your audit required you paying little, you sure have a professional TP and excellent audit trails—the real basis of professional tax work. Stop assuming, you will not be audited for years and for the year you will be, you would get away with paying just additional taxes.