CONSUMERWATCH: Avoiding an audit
Published Monday, March 19, 2012 12:01PM CST
Canadians will be gathering their receipts, assessing their finances and trying to decide whether to use an accountant or go it alone this month. All of that work and stress will be to avoid a worst-case scenario: an audit.
Charlene Thiessen never thought she'd be audited until a letter arrived in the mail, letting her know the federal government wanted a closer look at her receipts and tax forms.
"It was a little bit frightening because I thought I sent everything in," said Thiessen.
Mark Jones, an accountant with Olafson & Jones, said the reaction isn't uncommon. "Abject panic is the first response," said Jones.
Jones said less than one per cent of his clients are audited but many more are asked to provide receipts or additional information after filing their taxes.
Canada Revenue Agency says audits are random, but Jones said some taxpayers are more likely to be singled out than others.
Jones said those who are self-employed or claim small business expenses like meals and travel tend to be audited more often, as such expenses raise red flags for auditors.
Ken St. Germain said he believes he was audited because he is self-employed. "They like to shake the money tree and hope some dollar bills fall off the money tree," said St. Germain.
The CRA came after him, he said, for unapproved business expenses.
Small business owners aren't the only ones to trigger audits, though.
Jones said even something as simple as being divorced with children means extra care must go into preparing your taxes.
"You have to agree who is going to claim the kids for the deductions, who is going to claim the fitness tax credit, the child care receipts," said Jones.
"If both parents claim their child as a dependent and submit their tax receipts, CRA will disallow both of them and give no one the credit," Jones said.
Moving expenses, a large donation or big changes in your tax returns could provoke an audit as well. Not filing for a number of years is a big red flag for auditors as well.
If CRA does conduct an audit or review, Jones said it's best to play by their rules.
"Those request letters usually give you 30 days to respond. Make sure you respond and give them what they need," said Jones.
"As long as you've got the backup for what you're filing, there's no problem at all," said Jones.
St. Germain said he considers the audit a learning experience. "I think you get better at keeping your records."
The CRA recommends you keep all of your records for at least six years.
The deadline to file your taxes is April 30. For a complete list of red flags that might provoke an audit by CRA, click here.