Tax Audit from Hell? – Part 2

bookkeeper NewmarketA couple of weeks ago I thought this would be part two of a three part series, even though it was originally planned for two. But thankfully it appears we’re on the final leg of this very long and stressful journey. Let me take you back as to why this has been the tax audit from Hell.

In my previous blog, I finished with the auditor’s request for a 2011 personal breakdown of expenses and income. And, the income wasn’t just related to T4s and Child Tax Benefits. It related to every deposit made to all of their bank and investments accounts along with that of their children for all of 2011. The auditor wanted closing balances of all their accounts at 2010 and opening balances for 2012 which included but wasn’t limited to:

  • Mortgage statement
  • Childrens’ RESPs
  • TFSAs
  • RRSPs
  • investments accounts
  • Savings accounts

After supplying him with all the information he requested, he still needed bank copies of all their deposits that weren’t obvious, i.e., Child Tax Benefits direct deposits and personal tax return refund deposits etc., for the full year. It took my clients weeks for the bank to request and receive all of this old information. The auditor was not satisfied until he received a copy of the individual cheques deposited, front and back, along with the reason for my clients receiving the monies. If there weren’t cheques deposited, he wanted the details of the cash deposited, from the bank. We’re talking how many $10s, $20s, $50s etc. that were deposited. He was relentless. He even went so far as to telephone my client’s next door neighbour to ask why the neighbor had written a cheque to my client, FOR LESS THAN $400! Needless to say my client was upset and embarrassed, and the neighbour was shocked that an auditor would call and ask what he considered a private matter. Thankfully they have been neighbours for a very long time and my client had shared the details of what was going on.

For the last couple of months we had told the auditor we wanted this all resolved by the beginning of this month. My clients didn’t want this hanging over their head going into the busy holiday season, and there was nothing left for them to do or supply. When I contacted the auditor on a Monday near the end of November, he said he didn’t know if he would get to it before the holiday season, as he also had other accounts he was working on and he was going on holidays. When I asked him when his holidays were booked, he said he didn’t have to book them he could take time off whenever he wanted. That just didn’t sit right with me. So two days later, I called him and got the voice message that he was away on holidays but I could leave a message for his supervisor, which I did.

The following day the supervisor contacted me and explained that the auditor was on “a leave of absence” and since he had been monitoring the file, he was up to speed on the status. He said he felt everything was accounted for and he would report that no further action was required. He also said my clients would be receiving a letter, in a few weeks, indicating that the audit was finished and nothing further was required. I told my clients to be cautiously optimistic as there could be some minor interest or penalty on a couple of potential issues, but that it was over.

So what would you do if you were presented with an audit that delved so deeply into your business and/or personal transactions for a year? Do you have the paperwork and the answers? Are you comfortable dealing with CRA, and do you have the time and patience? Before you respond to an audit request, ask a professional’s opinion on:

  • The best way to proceed
  • How your records should be presented, and
  • Do you have any options as to the timing of the audit and the location where it is to be held?

Do you really want the auditor camped out at your dining room table for potentially weeks at a time? You need to know your rights, the laws and the extent that the CRA can disrupt your life and that of your family’s.

As always, I welcome your feedback. You can connect with me via email or telephone, leave a comment right here on the site or click the contact tab at the bottom of the screen if you are reading this blog post on the website.

Until next time,

Maureen

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