As Canadians hustle to meet the April 30 tax filing deadline, a new development tucked into this month's federal budget is stirring concern. The proposal aims to broaden the audit powers of the Canada Revenue Agency (CRA), targeting non-compliance more rigorously.
The initiative follows a 2018 report from the Office of the Auditor General, which highlighted cases of taxpayers disregarding requests for information. An estimated three million Canadians will soon receive notices from the CRA indicating their income tax returns are under scrutiny.
While receiving such a notice may induce worry, it's crucial to understand the process. Initially, individuals facing a review will be asked to provide documentation supporting specific claims, deductions, or income amounts. Ignoring this request can exacerbate the situation.
Typically, reviews aim to validate submitted information and may necessitate documentation dating back six years. Tax filers must respond within 30 days, even if requesting an extension. Failure to comply could lead to disallowed claims or deductions.
Tax experts caution against withholding information during reviews, as this may trigger reassessment or penalties. The CRA employs undisclosed methodologies, including a scoring system, to identify returns with potential inaccuracies. Factors such as inconsistencies with third-party data or a history of non-compliance may trigger reviews.
While reviews are generally manageable, audits delve deeper into a taxpayer's records and finances. Audits, often prompted by risk assessments, entail closer scrutiny and may result in repayments within 30 days, with accruing interest for delays. In severe cases, wage garnishment, asset seizure, or legal action for fraud may follow.
The CRA's increased focus on audits targets various groups, including self-employed individuals, homeowners utilizing capital gains exemptions, and landlords declaring rental income. Additionally, lifestyle incongruence, where claimed income doesn't align with an individual's lifestyle, may raise audit flags.
Seeking professional assistance is advisable when facing a review or audit. Financial advisors and tax specialists can provide guidance and potentially uncover past errors, leading to refunds or long-term tax savings. While hiring professionals may incur costs, it's a prudent investment compared to the consequences of disregarding CRA inquiries.
