How does CRA select taxpayers to audit? There may be no apparent reason for the Canada Revenue Agency (CRA) to audit a business or individual. A CRA audit can generally only be conducted four years after someone files their tax return. However, some cases, like those involving suspected fraud or misrepresentation, can go even farther back in time, provided the reassessment is not time-limited. You should generally keep records for at least six or seven years.
The purpose of most audits is to determine whether the taxpayer paid enough taxes. The CRA’s Criminal Investigations Program (CIP) may conduct a criminal investigation if the CRA suspects a taxpayer of fraud or wilfully tries to evade paying taxes.
How often does CRA audit taxpayers?
For example, CRA may review and reassess your tax return if there is an inconsistency in your reporting. During an audit, the amount of income, deductions, and credits reported on a return are reviewed to ensure they are reported correctly. If the CRA discovers a discrepancy or mistake, they may ask for further information.
The audit process examines more than just one year’s worth of an individual’s tax return. CRA can conduct audits based on a variety of factors, including:
- The frequency or likelihood of tax return errors
- Noncompliance with taxes owed
- Contrary to other audits or investigations or similar files
- A government investigation or an outside source finding non-compliance
Additionally, CRA may:
- Organize an audit of a group of businesses or individuals to enhance compliance within the group
- Audit someone who is financially connected to someone already being audited, such as business partners
Is CRA involved in criminal investigations?
Criminal investigations are typically launched by the CRA after receiving information from multiple sources, including:
- CRA referrals, including referrals from previous audits;
- Informant leads provided to the CRA by individuals;
- Law enforcement data from a variety of agencies;
- Sources of public information, such as the media
Investigations by the CRA are most likely to involve the following:
- International cases of significant tax evasion
- Organizers of sophisticated tax schemes that defraud the government
- Investigate tax evasion cases involving money laundering and terrorist financing in collaboration with other enforcement agencies.
- A significant amount of income tax or GST/HST evasion
A tax investigation involves gathering and analyzing evidence, executing search warrants, and interviewing taxpayers and witnesses. To review the evidence and assist CRA in laying criminal charges, CRA submits a report to the Public Prosecution Service of Canada. Complex cases of this type can take years to resolve. In addition to paying back taxes owed, plus interest, individuals convicted of tax evasion can also face fines and incarceration.
Visit the Canada Revenue Agency for more information about investigations conducted by the Canada Revenue Agency.
Please contact our advisory services for assistance with tax planning, a CRA tax dispute, or other tax issues. Our tax accountants can assist with tax-related issues. If you need general information, please contact us, and we will be happy to assist you.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.