Ottawa Proposes Expansion of CRA Audit Powers: What You Should Know.

Ottawa news:- The Canadian federal budget includes a proposal to expand the audit powers of the Canada Revenue Agency (CRA) and crack down on non-compliance with taxpayer requests, resulting in an estimated three million Canadians receiving notices that their income tax returns will be reviewed.

Tax Review Process Overview

• The CRA requests supporting documentation for specific claims, deductions, or income amounts.
• The review validates submitted information and can require documentation from up to six years.
• Individual tax filers must respond within 30 days, even if the request is for more time.
• Avoiding less than forthcoming can result in reassessment or penalties.
• The CRA uses an undisclosed scoring system to identify returns with the highest potential for inaccuracy.
• Returns can be flagged if information doesn’t match information from third-party sources or if the filer has a “compliance history.”

Tax Audits and Their Impact

• The Canadian Revenue Agency (CRA) conducts in-depth reviews of tax returns, focusing on “risk assessment” and past investigations.
• Audits usually require payment within 30 days or interest charges.
• In severe cases, the CRA can garnish wages, seize assets, and impose jail terms if fraud is proven.
• Audits are often prompted for self-employed individuals dealing in cash or discrepancies between income and HST filings.
• The CRA has increased audits on homeowners using the principal residence capital gains exemption.
• Landlords who claim rental income but show losses could also be audited.
• The most challenging audit trigger is “lifestyle incongruence,” where an individual’s lifestyle contradicts their income claim.
• A darker motive is “snitchline,” where individuals report suspected tax evasion anonymously.

Tax Pros for Tax Issues

• Qualified financial advisors can assist in similar situations.
• If beyond their expertise, they can direct to a tax specialist.
• Tax specialists can identify potential long-term tax savings by examining past returns.
• Hiring tax professionals may be costly, but not as costly as ignoring the CRA.

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