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Tax audit - The tax audit

The Canada and Québec Revenue Agencies are formidable opponents when a taxpayer is audited. They have immense resources in personnel, time and funds.

When the telephone rings and an auditor announces itself, it is normal to react with worry, to say the least. The worry is justified since an audit can result in very costly financial consequences. The income tax acts of Canada and Québec are highly complex, in the case of taxes (GST/QST) unbelievably so.

Our tax systems are based on self-assessment. This means that individuals and corporations voluntarily complete an income tax return to report their annual income and claim all deductions or credits that apply to their situation. Audits are necessary to make sure taxpayers fulfill their obligations, apply tax laws correctly. It is the agencies’ role to question tax planning that results in less income for the government. The agencies allocate large resources in audits and realistically hope to generate money through reassessments.

It is good practice for the taxpayer to be collaborative and transparent up to a point. Nevertheless, perfectly honest and rigorous taxpayers have legitimate worries.

Most people would agree that auditors from CRA or QRA are generally competent and understanding. There are exceptions, and newspapers sometimes report horror stories where taxpayers are precipitated in bankruptcy by uncompromising or less than competent auditors.

It could prove critical for your financial survival to manage an audit correctly, by having the best guidance possible. Clients at every level rely on us to represent them in a tax environment that is growing more restrictive. The tax authorities fight an increasing number of so-called aggressive planning operations. Anti-avoidance laws and highly technical rules support CRA and QRA in their more dynamic quest for compliance.

1 - Loi de l'impôt sur le revenu, L.R.C. 1985 (5e supp.), c. 1.