How not to freak out during a Canada Revenue Agency audit

by Kenji Maeda on February 21, 2009

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Ok. So I didn’t actually get an actual audit, but I thought I was going to. This is what happened:

I got home and there’s a message waiting for me on my voice mail requesting that I call Canada Revenue Agency (CRA). What would they want to talk to me about? I file and pay my taxes every year and everything is always on the up and up.

I call and I start speaking to the woman who left me the message. We go through the usual steps to verify that I’m the rightful owner of the account. I was hoping at this point she would open my account and say “oh, actually there’s nothing wrong, sorry to bother you.” But alas, that never happened.

She found my file and takes a moment to herself to review what needs to be done.

I don’t know about you, but I always get a bit nervous when a person with seemingly so much power over my records wants to talk to me.

“This is about your 2007 tax return,” she says and continues, “What was your total income and source for that year?”

I reply, “Do you want the exact number from each revenue stream?”

And of course she says, “Yes.”

Many of you can probably relate as you likely have multiple streams of income, including acting revenue. At this point, I still wasn’t sure what was going on, but I did have two things on my side that kept me from over-thinking and freaking out about the situation: 1) I knew I didn’t do anything wrong, and 2) I tend to be well organized with my finances.

I looked behind me on my shelf and grabbed my binder labeled “Finances 2007.” I find the tab labeled “Revenue” and flip to that section. I flip to the summary of all the income for that year indicating the company that paid me, the category for the services I provided, and the total amount received.

I promptly provided the CRA representative those details and she thanked me. It turns out that all she was doing was verifying that I had reported my income from a specific company I had worked for that year. I had gotten myself a bit anxious for no reason at all.

Why do I share this story?

Because as a person who is self-employed with multiple streams of income it’s important to have things organized. In this case it helped me keep my cool (for the most part) and allowed me to move through that process faster. If my receipts and files were sitting around in a box and I didn’t have proper records of all my finances, it could’ve taken me much longer to get all those details figured out again.

It’s been mentioned more than a couple times here. Treat your acting as a business. Having things organized will not only allow you to be more efficient in your work but it can also ease your stress along the way. Knowing that many actors already get stressed out with auditions (or the lack thereof), keep the business-side organized and give yourself time to focus on the creative/artistic side.

Read about getting things done on our blog, and read down to Linda Watters’ comment about how she likes to be organized http://www.productionheads.com/2009/01/88/

{ 10 comments… read them below or add one }

Adlynn February 22, 2009 at 2:32 pm

As a previous agent at CRA. All I can say is CRA agents are there to help taxpayers in any way they can so even if you are “randomly audited” do not panic. CRA agents are just normal people like the ones you meet picking up a latte at Starbucks. The only difference between them and us(taxpayers) is that their job consists of upholding and administrating the laws of the federal government that our members of parliament enforced. There is no need to feel overpowered by the job they have. If for some reason, you are unable to obtain all the financial information requested on hand, just let them know and give them an approximate time frame of when you can perhaps obtain the information (ofcourse you try to obtain them within their deadline though). Like Kenji said, it is very important to keep in track of all the financial side of you income for atleast five years because our tax system is a self-assessment system; you are responsible and liable for filing your taxes. Take note that they do have the authority to reassess/audit your taxes within the last four-five year period. Lastly, it’s very very important you know exactly what you are filing instead of filling up the spaces on the T1 and T2 returns.

James Bell February 22, 2009 at 7:34 pm

Yeah, it’s extremely important to keep everything in order…and also be in contact with a good accountant if you can’t handles this stuff yourself.

I was personally in DEEP, DEEP trouble with CRA and had little way out because I wasn’t organized and had no clue what I was doing. After years of trying to deal with issues regarding it – I simply went and had a talk with an accountant that not only saved my bank account, but gave me a piece of mind that it’s not nearly as stressful or complicated when you make sure to keep tabs.

clarence June 14, 2010 at 9:09 pm

Is there any hope for me? I am in the process of being audited for the last three years. I have most of my receipts for 2008 and 2009 but I have had most of my receipts destroyed when our basement flooded. These were the receipts for 2007. I have a small home business. The receipts were for a lot of work we had done on our home business, repairs etc.. I tried contacting some of the suppliers but many say they can’t get my major purchase proofs from 2007. Even Home Depot only goes back 18 months. Any suggestions? Thanks

calrence August 15, 2010 at 9:28 pm

Clarence, all you need is your statements that prove you paid for the expenses. Get proffessional help ASAP. I would not recommend dealing with CRA on your own. There job is to collect money at all cost. I have been studying my own case, and those of others. We now have a tax reperesentative who has now taken over all communication with CRA and dealing with the request from CRA.

John Doe September 23, 2010 at 10:31 am

First a comment, then I just want to breifly relay what happened to me so far….

So in regard to the call you got. Here’s a piece of advice. If you ever get a call from CRA, basically you have to understand what kind of a criminal mastermind you’re actually dealing with. Never ever reveal anything to any CRA agent on the phone. NEVER. What you say to them is simply something like: “Well I don’t have any information right in front of me but I can have my accountant call you back with the information”. Then when you get off the phone have your accountant and or tax lawyer call them back. Never talk to to them directly. Never agree to meet with they directly. They basically are only out to scam you and steal you’re money if you haven’t figured that out already.

Case in point….

My situation is that I was doing a fair amount of business about 7 years ago. So recently just a year or two ago they started an audit for those years. Now I’m a small business person. I have an accountant, and I pay my taxes in full each year and I’m just your average honest hard working business person. I was living in a small house, used car, nothing extravagant what so ever. No spending sprees or anything. But when the CRA went for the money grab they didn’t hold back or be even close to realistic about it.

Okay imagine this. They actually tacked onto me personally for this 3 year period they are auditing a total of over $600,000. They also added to my company a total of $200,000 for that time frame. Then they added penalties of another $200,000. Plus they tried to add another $200,000 in GST which they later recounted. So add up the numbers they are going for right now and that comes to $1,000,000 (one million) they are trying to get from me. Such absolute gross misconduct. Something you might think only happens in the movies. Something that might cause a person in bad health to have a heart attack on the spot! But no it’s 100% totally and completely true. I haven’t had to pay yet, as my lawyer is still dealing with them. And hopefully if a miricle falls from the heavens I might still be okay. But that’s the kind of criminal entity you’re dealing with. Where adding a million dollar extra tax bill to even a very small business person is no big deal and is just another routine task in a day in the life of a CRA agent.

So all I’m saying is most people have no idea of what a master criminal organization the CRA is. I didn’t realize how big of a scam this entity is until now. What try and start a business. It’s not even worth it. Absolutely not worth doing. Because once you open a corporation the CRA will see that and they are bound to come knocking at your door to extort some extra loot from you that you don’t have. No it’s not even worth starting a business, you’ll just get rapped at some point. Talk about raping your average honest hard working Canadian. You’re not even human to them, you’re just another sheep. If it can happen to the honest businessman who has a good accountant then it can happen to anyone. Well, they’re going to hell that’s for sure.

BK December 25, 2010 at 11:30 pm

I was hit with a triple audit 1) me personally 2) my company 3) GST on a project. 2 and 3 were cleared they made an adjustment to my company’s NI for 2007. It took them 8 months to do my personal income tax audit which is a joke, big time joke and has taken them 2 years over that to respond to my challenge. Its funny how they can do whatever they want, apply rules that “they think you know” when really you dont and also how all CRA auditors think that as businessmen we should operate like popscile stand with no expenes but all revenue

SO i finally took it out on CRA and told them over the telpehone they are “a waste of tax payers money” which they are. Being a commissioned self employed business man i get walked on all the time and 9 times out of ten i have to end up fighting to get paid and if i do have to fight to get paid its some federal/provincial goverment employee on the other side taking advantage of me which they do here in Saskatchwan. So all i got to say is Adlynn your wrong, and John Doe your right.

marco jonson March 16, 2011 at 9:52 pm

what happened for audited person in case of the CRA prouves undeclared income.
do they have right to freez the bank account of husband or wifes of the audited person
thanks

Linda December 7, 2011 at 9:37 am

Thanks for sharing this!
I had a similar situation, however, in my case, I did not report some income for a couple of years worth of tax returns – not on purpose – but that explanation would not go over too well with CRA. Anyhow, I ended up going through a tax firm (TaxWatch Canada) – they got it all settled for me – took it off my hands and dealt with CRA. Its all resolved now! Yes, I learned to keep organized, but in the case like mine where I felt almost hopeless – it may be a good idea to get an accountant to represent you when dealing with CRA.
=)

allan January 31, 2012 at 11:07 pm

My small business will be audited in the next few weeks, I received a call from a CRA agent saying that she wants to help me!! I always paid my taxes and had an accountant always do them on time BUT I feel I will be in big trouble simply because I lost my tax papers or actually I lost part of them, the ones my accountant doesn’t have like the invoices and the small receipts since only the bank deposits were taken into account as revenue. My company is doing bad and for the last 4 months, I have over 300,000.00 in accounts receivable that I can not pay and I’m contemplating bankruptcy for my incorporation. What will happen in this case? Will the CRA keep going after me personally even if I file for bankruptcy? Will they decide on their own what my revenues were without my lost invoices or will they leave me alone?

allan January 31, 2012 at 11:09 pm

Appologies: in accounts payables that I can not pay.

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