The CRA's 'Self Audit Program'

It is not enough that CRA chases people to get every last cent they can, but now they have a new initiative that gives you the opportunity to help them get every last cent you have.

They call it 'The Self-Audit Program'.

The program is aimed and individuals filing personal income tax returns and claiming Business, Professional and/or Rental Income on their returns.

They are targeting these areas because of the ability for individuals to claim deductible expenses in relation to the income declared, and in most cases, the income reported by the taxpayer cannot be verified by CRA without audit.

The 'opportunity' CRA is giving to these individuals (selected randomly they say) is to review the revenue and expenses claimed in prior years and to 'self declare' errors and adjustments required for those prior years.

The Canadian Tax System is one of 'self-assessment' whereas an individual taxpayer earns income throughout the year, pays for deductible items and earns tax credits for other things. At the end of the year, the taxpayer sends this information to CRA and tells CRA how much tax they owe. It is because of this system that CRA is clamping down on areas where revenues and deductions cannot readily be verified (as with T4 income earners). In positions of self employment or non-traditional (rental) income, CRA has a great deal of difficulty verifying information and they are well aware that some taxpayers are not entirely honest with their reporting in these areas.

The Self-Audit Letter Campaign began in 2010 with CRA sending more than 37,000 letters to randomly selected taxpayers that fall into these categories. These letters explain the process and provide notice to the taxpayer of CRA's intent to audit the individual.

During 2011, CRA intends to send out another 29,000 letters.

Upon receipt of the letter, you have 2 options:

Review your returns and report any required adjustments to CRA via a T1-ADJ Request form or;
Do Nothing.

If you elect to do nothing then CRA MAY choose to follow through with an audit of your records or they may do nothing.

Our position would be this:

IF you receive one of these letters, the CRA has targeted you because you fall under one of the criteria that they have chosen to scrutinize further.

You should review the information for the period they have selected from an honest standpoint and determine whether it could withstand further scrutiny by the CRA. If you feel your information is accurate and justified, contact a tax professional and review your position with them.

If you feel your deductions and/or other information may be less than accurate, talk to a tax professional as to how to proceed futher...

In any case, DO NOT DEAL DIRECTLY WITH CRA, you could say or do something that will come back to haunt you in the future.

ALWAYS talk to a tax professional before you take the next steps, a tax professional will advise you of your rights, what the CRA will be looking for and the safest route for you to proceed.

CRA makes this initiative sound a little 'too good to be true' and you know the old expression... and besides, when was the last time the CRA helped you pay less tax?

Michael Kelly is President and CEO of Ledgers (Barrie). Michael's firm provides professional accounting, bookkeeping, tax preparation services and advice for small / medium sized businesses needing to realize their growth potential, and for individuals seeking to minimize their tax burden.

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