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Mr. Shields advises his clients it could take up to a year to go through the audit process with the CRA. After reading the CRA letter carefully and understanding what’s required and by when, Ms. Pohlmann says business owners should make a list of the documents to gather – and ask for an extension if it’s a large volume of information.
Some potential triggers to an audit, she says, are “dramatic changes in your income from one year to the next,” claiming unreasonable expenses, excluding tax slips, and having a family member as an employee. In addition, the CRA occasionally targets a particular industry for a general review. He says he’s seen audits based on a business’s capital dividend account, the treatment of income as capital gains versus business income, and discrepancies between filings from a buyer or seller of a business. “It’s hard to know for sure” what might trigger an audit.