Revenue Canada Audits may just center on specific areas. ( Payroll - HST - Corp Tax - Income Taxes) In rare cases you can win a full financial audit
AUDIT PROOF YOUR BOOKS
Having a professional bookkeeper is a great to avoid an audit or make it go smoother. Whether the professional bookkeeper does "Full charge bookkeeping" for your business or just reviews your books on a monthly, quarterly or yearly basis is sure to help. As Bookkeepers, we have been through the audit process with Revenue Canada and know the triggers of a Revenue Canada Audit and the main areas that are zoomed into by the auditor. A well seasoned professional can look at your internal system and make changes to deter an audit or make your audit go smoother.
HOW DO I PROVE MY EXPENSES
Keep all those tiny chits. It helps if you know how they were paid ie; visa, bank etc., It is not simply enough to have a bank or visa statement , you need the actual chit or bill . An auditor can ignore or charge back expenses without one. Often these chits fade so many people scan or photo copy them. In any audit each chit or bill you expense should have the vendors Name - HST number on it and description of the purchase. Otherwise the HST credit taken or the expense may get charged back. The auditor simply calculates the charge backs and with interest and penalty to the tax account.
So make sure when you interact you have the actual bill as well as interac payment slip.
You should know where to find each record if needed. A filing system may be paper, digital or both. Some accounting software like quick books allow you to scan the document into your accounting package. There are also stand alone scanning systems that you can use. Don't forget the audit may not relate to the current year but one 5 years earlier for example.
The better organized the quicker the audit. The quicker you find documents the faster the audit will be over. Remember the audit could be three years prior, so how organized you were then could save you now. The auditor is not an evil spirit, so give them respect and your full attention. Ask the auditor for time if you cannot find certain items. Usually they will give you a week before they charge back the expenses.
Not even Santa is exempt from the County of Simcoe Tax auditor
The result of the audit will be a tally of anything the auditor is charging back. So if you took an expense you can't confirm or the auditor thinks is wrong it will be charged back with interest and penalty. You can usually set up a payment plan if the amount is a burden.
You can always appeal the findings in an audit.
Make notations on your bills and chits. Make memo notations in your software to help jog your memory. Meals that are written off should have the name of the people, company and their phone number written on the back.
What Triggers an audit?
You can be selected randomly or because they are auditing many firms in your industry. You may be audited because you have been late on filings, behind in payments or have submitted incorrect figures. Your payroll maybe out of balance at year end, your HST filings may not balance with the sales you reported at tax time , your figures differ from the industry or your financial statement filed had something that looked out of whack.