Five steps to respond to a CRA audit

accounting cra incorporation soleproprietor tax taxes taxseason May 15, 2023

Receiving a letter from the Canada Revenue Agency (CRA) can be intimidating, especially if it's about a review or audit of your tax returns. However, it's important to remain calm and take steps to respond appropriately. In this blog post, we'll provide you with a step-by-step guide on how to respond to a letter issued by CRA. From reviewing the letter and your rights to deciding whether you need support or contacting the agent, we'll cover everything you need to know to make the process as smooth and stress-free as possible. So, let's dive in and learn how to respond effectively to CRA letters.

Step One: Review the letter and your rights

If you receive a letter about a review or audit or a request for further information the first step is to read the letter in full. Make special note of the following things:

Exactly what they are asking for in your response
What the deadline is for responding to the notice
Your options for submitting your response, generally there are a few including fax, or uploading documents using Submit a Document feature which you can learn more about HERE
The name of the contact person on the letter. Sometimes this is a specific agent at CRA and not just a general line
Case reference number (if provided)

Also we want you to know that in the event of an audit you should make yourself aware of your rights as a Canadian taxpayer. Believe it or not CRA outlines the rights that you possess and they need to treat you fairly in accordance with these rights. You can learn more about them HERE.

Step Two: Decide whether you are going to engage support

Next decide whether you are going to engage support for responding to the letter. If you work with an accountant or a tax preparer you may wish to reach out to them to seek their support. You’ll want to determine before engaging their services whether the cost of their support is extra, obtain and quote and decide if they will take over communication with CRA. Essentially getting clear up front is key. Engaging support means someone who has dealt with these scenarios in the past will be working to help you and work towards the best outcome possible.

Step Three: Decide whether you want to contact the agent

This is a step a lot of business owners neglect. Again our fear takes over and we do everything in our power to avoid picking up the phone and calling CRA. There are a few key areas where doing so is imperative. These are:

If you know you will miss the deadline to respond (or if you already have). In this case you should be calling as soon as you realize this is the case (not the day of the deadline). Generally the agent will allow a reasonable extension.
To get really clear on exactly what is required. In order to avoid additional back and forth and also to avoid providing more than the necessary information we suggest going through the list of requirements with the Agent to make sure you know exactly what they are asking for.
If you do not understand any part of the letter, including if the information requested is beyond the scope of what you believe is possible. We have seen cases where standardized request letters are sent and it’s not applicable to the business. For example: If they ask for support for debt and loan agreements in the business but the business has no debt or loans then you can communicate this with the agent.

Last point on this - if you do end up contacting the CRA agent listed on your letter, be sure to document the outcome of the conversation including the date.

Step Four: Responding

The final step is to respond to the CRA. In a perfect world you will make it as easy as possible for CRA to review your submission. We recommend you include a cover letter and complete list with page references for all of the information you are providing. The cover letter would state your case reference number (if you have one), the date of the submission, the name of the primary Agent you are responding to and a brief outline of what you are submitting and how to reach you should the agent have questions about your submission.

You might be rolling your eyes right now, we realize this is more work. We believe however that these added touches go a long way to showing the CRA that you are organized and taking the request, and their time, seriously.

You would then submit it via your chosen method - we generally suggest online submission through your CRA My Account or My Business Account when provided as an option. These electronic submission methods make sure that your information gets the right place, no postal fees required. Also, consider following up by phone call with the CRA Agent assigned to your case number to let them know you have submitted.

Then try to breathe deep knowing you have done your part and it’s now out of your control.

Step Five: Is it final?

Once your audit or review is complete you should receive written confirmation of the outcome. Sometimes the results may mean a resassed amount of tax owing or possibly confirmation of a refund. You may be wondering if this is final? The answer is generally no. Don’t forget, you have rights as a Canadian taxpayer. If you disagree with the CRA’s reassessment you have the right to object. Read their letter carefully for any information that may help you understand the next steps - should you choose. Additionally, we recommend that you seek professional advice at this or really any stage of your CRA communications.

The Bottom Line

When you get a request for more information from the CRA, successful communication with the CRA will make your life as a business owner simpler and less stressful. By being up-front, knowing your rights and communicating with your agent in a timely manner you are putting yourself and your business in the best position possible.

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Wishing you success in your business,

- Martina + Ashli

Date published: May 15, 2023

Disclaimer - The information provided in this blog is general in nature and solely for educational purposes. Readers use and implementation of the information comes at their own risk and is their own responsibility.