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What happens when you undergo a tax audit?

December 09, 2023

By Eve-Marie Gigantes

Code red! You’ve received a notice from Revenu Québec or the Canada Revenue Agency that your business will undergo a tax audit. There’s no need to hit the panic button. This is common practice in a self-assessment tax system like ours. During 2016-2017, Revenu Quebec carried out tax audits on over 222,000 companies. Your best option is to make sure the process runs as smoothly and quickly as possible.

How? By working with the tax authorities.

There is nothing to be gained by digging in your heels, hiding information or making the auditor’s life difficult, whether the audit is carried out on site or remotely. Tax auditors have extensive inspection powers and the law allows them to require you provide reasonable assistance in connection with the audit. They may ask for access to a wide range of documents – both organizational and personal – and are authorized to visit your company’s various locations.

Basic rules

Working with the tax authorities does not mean you give them free rein. You have rights and can take certain measures to come out ahead. Here are the basic rules you should follow:

When the auditors first contact you, ask them to set out in writing the information and documents they want to review and for what periods. That way, you can prepare and avoid having the auditors randomly look for information to catch you out.

If the auditors’ requests seem very onerous, try reaching a compromise, while always showing you’re acting in good faith. For example, if they are asking for a large volume of documents, try to have the number of fiscal periods reduced or ask for an extension to prepare them. That being said, don’t delay the process needlessly.

It’s best if only one person deals with the auditors; this could be a manager, the controller or someone who knows about the business’s activities and finances. Ask your employees to refer all of the auditors’ questions to that person, regardless of what they are. You can also have your public accountants handle the audit, in which case it could be carried out in their offices.

Keep your accounting records and documents in good order and be prepared to quickly answer the auditors’ specific questions. Make sure your documents are in the proper order before handing them over.

Don’t overdo it. Only provide the documents and information requested.

Take the time to think about your answers, but without appearing to be on the defensive. Remember that the auditors will make a note of everything you say and can learn a lot about your business by conducting a simple search on line or in various government documents.

Similarly, write down the auditors’ requests and keep a record of your discussions. This may prove useful should you decide to object to the notice.

If you feel the discussion is getting unpleasant or it looks like it may get off track, don’t hesitate to call on an expert to represent you.

Negotiate! When the auditors have finished their audit, they will present a draft notice of assessment if they find information that warrants an adjustment. You will then have a few weeks to state your case and provide the relevant supporting documents. This is by far the best time to negotiate a reasonable compromise with the tax authorities and the auditors will be more likely to accept your interpretation of “grey zones” if you’ve cooperated throughout the process. Once the deadline has passed, a notice of assessment will be issued and it is harder to object.

Read about the audit process and your rights and obligations on the Revenu Quebec site (click here) and the Canada Revenue Agency site (click here). And, of course, don’t hesitate to contact our experts, it will be our pleasure to help you.