Increasing Risk of Being Selected for an Audit
In our last blog we mentioned that it is no secret that the Canadian government and the CRA have recently been finding new ways to raise revenue. Recent news articles in the Globe and Mail have reported that the CRA has been devoting more resources into uncovering routine common filing errors made by honest taxpayers rather than investing additional resources into uncovering intentional errors. Our recent experience with the CRA confirms this as well. Requests for financial documents to support routine deductions made by taxpayers’ clients are on the rise, even if the deductions are not large deductions.
What this means is that all taxpayers are at a higher risk of being selected for an audit – regardless of whether it is random or with good reason. Professional accounting firms almost always provide professional support to clients being audited because it is part of their professional responsibilities – especially if the accounting firm prepared the tax return(s) being audited. Professional accountants have a vested interest in their own clients’ audits for many reasons; one of the most prominent ones should be their own professional integrity. After all, the results of an audit should reflect the accuracy of the return prepared by the accountant!
What about taxpayers who choose not use a professional firm or prepare their own returns and then get audited? These taxpayers inevitably have to seek out firms like Mew and Company for assistance and usually we are reluctant to take them on for a few noteworthy reasons. Based on conversations with these taxpayers, other professional firms usually feel the same way – they’re also reluctant to represent them. Often when a taxpayer is asked why they haven’t gone back to the person or company who prepared their tax return, two common answers emerge: either the preparer is not returning the taxpayer’s phone calls, or the taxpayer no longer has any confidence in the preparer.
How do taxpayers insure themselves against this type of stressful situation?
For starters, it is recommended that a taxpayer hire a professional accounting firm at the onset. It is well known that CRA is less likely to audit professionally prepared tax returns and more likely to audit self-prepared tax returns. An experienced accounting firm will also advise on areas where audit risks are high. Even though professional fees can be expensive, the benefits of highly professional tax preparation services will often offset the value of the fees themselves. Also worth noting – accounting fees are usually a tax-deductible expense.
Secondly, if you do not think the preparer can deal with a CRA audit, then ask yourself if the preparer is knowledgeable enough to prepare your tax return correctly. Like it or not, taxpayers tend to get themselves into trouble with CRA when they submit self-prepared returns or returns prepared by a sub-par accountant. Taxpayers often tend to use an accountant who charges less or they choose an accountant they’ve heard about through friends and acquaintances because of impressive “tax brags”; in the latter situation, taxpayers are usually swayed by everything but logic and common sense and focus only the promise of a giant refund.
Lastly, your best insurance policy is to go with your gut if you have concerns about accuracy and professionalism. Pay the higher fee now for highly professional tax advisory services and then forego the potential added expenses and heartache later on!