CRA Requests for Information
Canada’s tax system is known as a ‘self assessment’ system, meaning taxpayers prepare and file their own tax returns. There is often a lot of information that goes into preparing a tax return, most of which will not be on file at the CRA either before or at the time of filing. For this reason, the CRA may contact taxpayers to request information related to their tax filings.
A letter from the CRA requesting information is not an audit. It is just the CRA’s normal way of verifying information. You may have been selected randomly for a review. You may also be selected because information that doesn’t make sense was entered on your tax return, which is why we always recommend that you have a professional tax accountant help in preparing your returns.
The information a taxpayer provides to the CRA in response to a request for information may result in the immediate acceptance of a taxpayer’s filing position (best case scenario), additional questions / review, or an audit (worst case scenario). This is why your best defence from a CRA audit is to ensure that the information submitted on the originally filed return is professionally prepared and supported and based on good information and the correct application of our extensive tax laws. This is another reason we recommend hiring a professional tax preparer.
A common area where we have seen the CRA focusing efforts is GST. When a refund is requested because you spent more than you earned in a particular period (which is very common in the construction industry), or if some metric, such as sales, has changed dramatically from period to period, a CRA GST Refund Integrity Officer may send a letter requesting information about the GST return, such as:
- General ledger details of sales and expenses
- General ledger details of the GST accounts
- 10 largest sales invoices
- 10 largest expense invoices
- Description of the activities in the company
Compiling the information and responding to GST requests should not be taken lightly because it is the job of the requesting CRA officer to find errors in your GST returns.
A Pensionable and Insurable Earnings Review (PIER) will result if there is a variance between the annual T4 Summary and Slips submitted by a company and the balance in their payroll account at year end. PIER audits can be quite onerous, which is why we recommend using a professional payroll service provider to calculate and remit withholdings and to issue and file T4 summaries, and issue slips to employees.
Take Steps To Protect Yourself
In all cases, the manner in which you respond to CRA requests is absolutely essential to mitigating your risks. The information you provide to the CRA in response to a request for information can result in the immediate acceptance of your filing position (best case scenario), additional questions / review, or an audit (worst case scenario).
Poor filing compliance or payment history may also trigger an audit. Our recommendation is to always ensure that your tax filings and tax payments are up to date and in accordance with our tax laws.
The cost of hiring professionals to respond to CRA requests can be extensive. We offer the Audit Shield fee waiver service, which covers the cost of responding to such requests (up to certain limits) so that you do not have to balance the refunds you are legally entitled to against the professional costs of responding to requests for information.