Over my years as an accountant, I have seen a number of Canada Revenue Agency (CRA) queries to my clients and have come to the conclusion that are several factors that can cause them to come calling on businesses and people.
1. Postal Code: CRA has a program where they match an individual’s income to their postal code. If the housing in your neighbourhood is higher than the income you are reporting, they may ask to see your bank statements and request income verification to see how you manage to live in that area and what kind of toys (boats, ATV’s, vacation properties) you have.
2. If you regularly have business or investment income or expenses and then one year there are significant increases or decreases, this can cause them to ask for more information to find out why you are statistically out of the range of your usual reporting. For example, you might have large purchases and claim way more GST Input tax credits than normal so they might ask to see the largest receipts or a listing of the GST input tax credits you have claimed. It’s important to keep all your receipts and paperwork for six years after you have filed your tax returns (either personal or corporate tax returns)
3. Some people say that once you have an issue with CRA you become “flagged” then CRA constantly monitors your income or starts requesting more information on various expenses you have deducted from your income. I don’t know if that is true or not. I have some clients that seem to be selected more often than others. Whereas many others have a query once and then seem to be fine for years after that…. You can draw your own conclusion!
4. And lastly, you might have CRA come knocking because it’s Tuesday…. That’s right – there’s no telling why they selected you. Often they do random selections in certain cities for a program to review restaurant or hair salon tips, subcontractor earnings, medical deductions, professional fees paid and the list goes on.
Best advice – If CRA contacts you… Call your accountant before you respond to ensure you are providing the correct information! It’s always better to provide only the information that they are requesting and not the whole enchilada.