What do you do if the CRA flags your tax return for a review? The first thing is not to panic, a review isn’t an audit. Reviews are quite common, and the reason why they select you could be purely random. The Canadian government says they review approximately 3 million tax returns each year. And if they’ve reviewed you before, or you had a significant change in your tax return this year, that could be enough to warrant a review. Regardless of the reason, once you’ve been selected for a pre or post-assessment review, there are a few next steps you should know.
What is a Tax Review?
A tax review is a more informal look at the information submitted on a tax return. Often, a review is looking at a specific deduction claim. An audit, on the other hand, is a detailed and thorough review of your tax return and takes much longer. There are a few different types of tax reviews that you should be aware of.
- Pre-Assessment Review: this is a broad review of a tax return before the CRA issues a first notice of assessment. In a pre-assessment, they simply look for any red flags or inconsistencies.
- Processing Review: similar to a pre-assessment review, a processing review takes place after a first notice of assessment is issued.
- Matching Review: this review is exactly what it sounds like. It’s matching the information provided by you with that obtained by third-party entities. An example of this could be the income you claim in comparison to your T4 statements.
- Special Assessments Review: this is a more specific and specialized review of “problematic” areas as deemed by the CRA.
Talk to Your Accountant
If you have an accountant or bookkeeper who helps with your small business tax preparation, let them know right away. They’ll be able to help you collect the necessary documentation and can relieve a lot of the stress. If a review does progress into an audit later down the line, your accountant should be aware of any reviews in the past, so notify them right away.
Collect the Necessary Documentation
Your accountant can help you collect the necessary documents to provide to the CRA for review. The CRA will contact you, by phone or in writing, and ask for specific information regarding what they’re reviewing. Part of adequate small business tax preparation is ensuring that you have all the documentation associated with any deductions or claims you’re submitting. This will speed up the process of a tax review should one happen.
Important note: Always keep copies of receipts and documents. And don’t forget to add clear descriptions for the CRA when you provide any proof or documentation in a tax review or audit.
Timelines & Submission
Make sure that you submit all necessary documents and explanations within the given timeframe. If you’re struggling to give the required information, reach out to an accountant for help. If you don’t submit within the timeframe, the CRA will adjust your tax return based on the lack of information, and you don’t want that.
When it comes to submitting the necessary documentation, you can submit by mail or electronically. The mailing address will be on the original request for review, and the CRA has a My Account online portal for electronic submission. You’ll see a Submit Documents button available here. If you have questions or need to explain any missing documentation, call the number listed on the letter or submit an explanation with the rest of your documents.
Always include your reference number and keep records of what you submitted and when. Keep this with copies of receipts and documentation for at least six years after.
Being sent a request for additional documentation for a tax review can be scary. That’s why proper small business tax preparation is vital. The best thing you can do is to keep organized, clear records and to work with a reliable and skilled accountant for your accounting services. At Genesa, we’re here to help you navigate the world of small business taxes and all the bumps along the way. Get in touch today.