Loans Canada Launches Free Credit Score Portal And Is Recognized As One Of Canada’s Top Growing Companies
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
Filing your taxes can be an unpleasant experience. It’s not uncommon for stress to accompany the filing of a tax return, especially one that’s complex. Navigating the endless rules in the tax code can be a daunting and time-consuming task. There’s also the stress associated with filing on time, paying taxes owed, and of course, the most dreaded one of all: the audit.
But does an audit warrant that kind of anxiety? Or do people overreact in the face of an impending Canada Revenue Agency (CRA) audit, believing it to be more terrible than it really is?
In Canada, the tax system functions under a self-reporting system, putting the onus on the taxpayer to determine their share of taxes. Taxpayers are responsible for determining their tax liability, submitting their returns, and paying any outstanding taxes. They can choose to do so on their own or with the aid of a tax professional.
However, the CRA understands that errors and omissions in tax reporting are bound to occur. As a result, it conducts audits on a select percentage of Canadians every year to ensure compliance with applicable tax laws is observed.
When the CRA initiates an audit on your taxes, it means they want to verify that the claims you’ve made on your tax returns are accurate and in accordance with the tax code. An audit typically entails providing proof of income and expenses in the form of receipts, bank statements, accounting records, and other documentation. An auditor examines all of these documents and then presents their findings to the CRA.
It’s important to note that the CRA isn’t only targeting taxpayers who are engaging in tax evasion – they want to help fix innocent mistakes people make on their tax returns. In some cases, the audit may reveal a person overpaid their taxes and is entitled to a refund. The CRA’s goal with tax audits is to maintain the integrity and fairness of the Canadian tax code, ensuring individuals pay what they owe, no more and no less.
![]() File your taxes with TurboTaxGet Started |
When it comes to the CRA, no one is exempt from scrutiny – you can be audited any time. However, if you fall into one of the following categories, your chance of being audited increases:
If you’re self-employed, you’re essentially operating a small business, which means your tax return is likely more complex than a standard T4. The CRA may wish to verify that you’ve reported all your income and deducted your expenses correctly.
Your home address may sometimes arouse suspicion from the CRA. Suppose you live in an affluent neighbourhood in an expensive house but report a relatively modest income on your tax return. The CRA may wonder if you’re earning more money than you’re reporting.
Business and rental losses can be legally offset against your taxable income, reducing your tax liability. However, suppose your losses keep recurring year after year. In that case, the CRA could suspect you’re “manufacturing” them by deliberately selling assets at a loss. They may also wonder if you’re operating a hobby business as if it were a legitimate commercial activity. If your business is primarily a hobby, with no reasonable expectation of turning a profit, the tax code prohibits you from deducting any associated losses against your taxable income.
If the CRA spots discrepancies between the details on your tax returns and information provided by third parties (such as your employer), this could spark an audit. For example, suppose the income from your T4 slip exceeds what you reported on your tax return. In that case, you may have received additional taxable benefits from your employer during the year, which you omitted when filing your taxes.
Does your income fluctuate widely from year to year? Do you constantly switch jobs while juggling freelance work on the side and use tax credits and deductions inconsistently? If so, your chances of getting audited are higher. Given your erratic income stream, the CRA may wish to review your records to ensure your reporting is accurate.
Financial institutions are required by law to report to the CRA wire transfers of $10,000 or more. If you’ve been the recipient or sender of numerous wire transfers in that dollar amount, the CRA may wish to examine the nature of those transactions.
What exactly happens if the CRA has chosen to audit you? And what’s involved in the process? The following is an outline of what a typical CRA audit entails.
A representative from the CRA will contact you by phone, informing you of the upcoming audit process and where and when it will take place. You may receive a notice in the mail instead of a phone call.
The audit will likely take place at your home or your business premises. An on-site audit at your principal residence is ideal, as it allows you to gather the essential documentation without having to transport it to a CRA-designated office.
If an on-site audit is not possible, it will be scheduled at a CRA office.
Depending on the scope of the audit, you may need to supply the auditor with a wide array of documents and detailed information, including:
In addition, the auditor is permitted by law to inspect your family members’ records or obtain additional insight about your business by interviewing your employees.
Upon completion of their analysis, the auditor will make one of two conclusions:
You have 30 days to file a dispute if you disagree with the auditor’s findings. Be sure to contact the auditor to explain your position and provide all the necessary additional documentation to corroborate your case.
Once the audit is fully complete, the CRA will issue you one final letter informing you of the results and any action required. One of three scenarios is possible.
Audits are routine for the CRA. They are necessary to ensure that Canadians are following the tax code and reporting their incomes and expenses accurately. Still, they can be intrusive, time-consuming, and, in extreme cases, inflict a psychological and emotional toll.
Always anticipate you may be audited one day. Being aware of this possibility will incentivize you to maintain your tax filings and related documentation in good order, to present them if the need arises. The better prepared you are, the quicker and easier it’ll be for the auditor to review your records, make an assessment, and close the audit. And who knows, you might even end up with a refund!
Rating of 5/5 based on 3 votes.
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
Great unsecured credit card for customers currently in, or recently discharged from, a consumer proposal or bankruptcy
Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.
KOHO’s Credit Building Program helps you build a better credit history with easy to manage payments for just $10/month.
All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.
When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.
Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.