After you file your tax return, Canada Revenue Agency processes it. It will issue you a refund or charge you for taxes owing, depending on the result of your return. While many returns are processed without a review, sometimes your tax return may be reviewed or audited.
It’s a good idea to keep your income tax records for at least six years, in case your return is selected for review or audit. Learn more below about the steps to take if you’re reviewed or audited
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Why might your tax return be reviewed?
After you have filed your return, Canada Revenue Agency (CRA) may contact you about it and not necessarily just at tax time. The CRA could review your tax return at any time.
Receiving a refund from CRA, does not mean you cannot have your taxes reviewed or audited. And you may be asked to pay back refund money if you are deemed ineligible for some deductions made on your original return. Or you may be asked to pay money to CRA if your original return did not include all the taxes you owe.
Some returns are selected at random for review. But the CRA may choose to review your tax return because:
- The information on your return does not match information from third-party information sources, such as T4 slips from your employer.
- The types of deductions or credits you claimed or your history with the CRA raises a red flag. For example, if your return was reviewed in a previous year and the CRA had to adjust your claim.
- There are unusual changes in your return compared to previous years. This could be as simple as making a much larger contribution to your RRSP or to charities, or having greater medical or childcare costs than you had in the past.
It’s recommended to keep your income tax records for at least six years. Organize and file them by tax year so you can retrieve them easily in case you are ever reviewed.
Staying organized can take some of the stress out of tax filing. One of the simplest ways to prepare for tax time — or for a potential review — is to get into the habit of putting all your tax slips and records into an envelope, folder, or digital folder, for each tax year. If you work with an accountant to prepare your tax return, you’ll also be all set to hand over your papers when they’re ready to start work.
Once you’ve filed your return, you can use that same folder to keep a copy of your return and your notice of assessment.
You can find information about your tax return and benefits in your CRA MyAccount. If you have not signed up for MyAccount, you can do so for free any time.
What types of tax reviews are there?
A tax review is not the same as a tax audit. But it may lead to an audit if the CRA is not satisfied with your response to the review.
There are a few different kinds of tax reviews:
- Pre-assessment review – Takes place before a notice of assessment is issued. After you submit your tax return, the CRA may review the deductions and credits you claimed. These reviews usually take place between February and July.
- Processing review program – Similar to the pre-assessment review, except for timing. The CRA conducts these reviews after it sends you a notice of assessment, usually between June and November.
- Matching program – Takes place after the CRA sends you a notice of assessment, usually between September and March. The CRA compares information on your tax return with information provided by third parties like your employer, banks or investment firms.
Make sure the information on your tax return matches the tax slips from your employer, bank or investment firm. This may help you avoid a review in the future.
What should you do if you’re selected for a tax review?
The CRA will try to complete its review based on the information it has on file. If it needs more information, a CRA representative may contact you. Here are five tips to help your tax review go smoothly:
- Send your response within the specified time frame – This is usually 30 days from the date of the letter. If the CRA doesn’t receive a response within that time, it will adjust your claim based on the information it has. This may not be in your favour.
- Include any additional information or supporting documents with your response – Organize the information and documents to make it as easy as possible for the CRA to review your response.
- Include an explanation for any missing supporting documents – Or, phone the office listed at the bottom of the letter to explain your situation. Do not just ignore the CRA’s request.
- Make notes of your communications with the CRA – Include dates, and the name and agent ID number of the person you are dealing with. You may need this information later.
- Always include the reference number for your case – That way, the CRA can quickly match the additional information you give them to your tax return.
Do not ignore a letter from the CRA. If the CRA doesn’t receive a response to its letter within 30 days, it will adjust your claim based on the information it has. This may not be in your favour.
What is a tax audit?
A tax audit is when the Canada Revenue Agency (CRA) examines your books and records to assess if you have paid all the taxes you owe. Audits are part of the CRA’s activities aimed at ensuring taxpayers are complying with tax laws in Canada.
The CRA chooses a tax file for audit based on the information it has on file, and based on a risk assessment such as the likelihood or frequency of errors in tax returns.
An audit is not the same as a review. But it may be triggered if the CRA is not satisfied with your response to a review. The CRA can audit tax returns within four years of the date of the original notice of assessment. If the CRA suspects fraud, it can audit you at any time.
What should you do if you’re audited?
If the CRA selects you for an audit, you will be contacted by mail or phone, or both, to start the process.
If you’re selected for an audit, it is in your best interest to:
- Co-operate with the auditor.
- Answer all questions respectfully.
- Provide any information and supporting documents requested on a timely basis,
You may also want to get advice from a tax professional, who can act as your representative.
Keep all your tax information and receipts for at least six years. If you’re audited, providing the CRA with the necessary supporting documents may minimize the impact of the audit.
When filing your tax return each year, it’s a good idea to follow these tips:
- File your tax return on time – Filing late can increase your chances of being audited. You could also be charged late penalties and additional fees.
- Report everything you are supposed to – Declare all of your income, especially if you are self-employed or are paid in cash. The CRA compares taxpayers in similar businesses to see if anything stands out. It also sometimes tests a certain group of taxpayers, such as people who earn most of their income in cash. If you fall into this category, and your return stands out, you may be audited.
- Get the math right – Inaccuracies may cause the CRA to flag your return. The easiest way to file an accurate return is to use tax preparation software.
- Beware of tax schemes – The CRA issues warnings about tax schemes, for example, buy-low donate-high charity schemes. You’re likely to be audited if you make this type of claim.
- Keep your tax records organized – Know where to find your tax records for each year, even if it’s just a digital folder or a manila envelope in a box. Keep your tax records for at least six years in the case of a review or audit.
Learn more about tax audits from the CRA.
There are a few key things to keep in mind about taxes and reviews or audits, including:
- After your tax return is processed, you’ll receive a notice of assessment.
- Your tax return could be selected for review before or after you receive your notice.
- A tax audit may be triggered if the CRA is not satisfied with your review, or if they suspect fraud or non-compliance.
- If you are selected for a tax review or audit, it’s best to comply with the requests for information and answer all queries accurately.
- When filing your tax return, ensure you file on time, report all income accurately, and keep your records organized.
- If the CRA suspects fraud, it can audit you at any time.