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Question

I recently received a letter from Canada revenue agency asking me for a ridiculous amount of information related to my business for 2012 to 2014. I’m self-employed and what they are asking for I’m not sure I can find. They are asking for every receipt for every expense that I paid for those years.

Is there a simple way to respond to them to better my chances that they won’t kick out all my expenses?

Answer

Sorry to hear about your recent correspondence from CRA. CRA has recently been quite active in sending out review or audit letters with respect to rental or business activities. I would highly suggest that you obtain some professional guidance from a CPA before you proceed with the request, however if you’re considering communicating with CRA I would suggest the following approach:

Be as complete as possible – If you have a bookkeeper make sure they are helping you in compiling as many receipts related to the expenses claimed as possible. If you’re doing it yourself open up all your files and organize everything as best you can so that the auditor can trace everything back from the original T2125. In order to increase your chances of success, your submission needs to be as complete and accurate as possible.

Be co-operative – do you best to be as co-operative with the CRA auditor as possible. Don’t forget that they are simply doing their job and if you make it difficult for them they could easily return the favor. Being open, honest and available to their requests is important. Once again however I would suggest that you obtain some professional help from a CPA with experience in navigating CRA audits.

Get prepared for possible adjustments – CRA conducts these audits and reviews to ensure that taxpayers do not claim ineligible business expenses. If you’ve claim expenses in the past that turn out not to be business related, CRA will deny these expenses and you’ll be faced with additional taxes owing for each respective year.

Develop a tight bookkeeping system – if you don’t currently have this in place I highly suggest that you either hire a competent bookkeeper or purchase a solid bookkeeping program in order to track, maintain and report your business activities. A solid system will allow you to go back and find source document for related expenses and income.

Please feel free to give me a call at 250-381-2400 and we can discuss how we can help you get through this audit in the most effective manner possible.

 

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