,canada ,cu/oms #a & ,rev5ue ,ag5cy ,9=m,n ,circul> ,subject3 ,! ,tax ,audit ,numb]3 #ga-ad;,r#c ,date3 ,june #ah1 #aihd ,? circul> c.els & replaces ,9=m,n ,circul> ,no4 #ga-ad;,r#b dat$ ,febru>y #e1 #aigi4 #a4 ,? circul> describes ! role1 ! policies & practices (! tax audit--! exam9,n ( taxpay]s' books & records 6det]m9e a3urately ! taxes1 9t]e/ & p5alties paya# "u ! law4 #b4 ,:ile "! is1 9 ,canada1 a hi< /&>d ( public -pli.e )! law1 a self-assess;t tax sy/em c 2 ma9ta9$ only "? vigilant & 3t9u\s 9spec;n ( returns4 ,! prim>y purpose (! tax audit is 6monitor & ma9ta9 ! self-assess;t sy/em4 ,z s*1 x plays an important role 9 ! #a #ga-ad;,r#c a#a a*ieve;t (! objectives (! ,de"p;t : >e 6collect ! taxes impos$ 0law "? ! 5c\rage;t ( volunt>y -pli.e & 6ma9ta9 public 3fid;e 9 ! 9tegr;y (! tax sy/em4 #c4 ,:ile ! prospect ( 2+ subject$ 6a tax audit is a /r;g 9duce;t 6volunt>y -pli.e1 "picul>ly 9 view (! p5alties applica# = gross neglig;e or wil;l non-compli.e1 ! p]sonal 3tact af=d$ 0an audit is an id1l vehicle = promot+ an atmosph]e 9 : taxpay]s c r1lize t ea* is be>+ a law;l %>e (! tax burd51 & n m ?an t %>e4 ,! law &! sy/em #d4 ,! ,canadian 9come tax sy/em is "o ( self-assess;t4 ,9 x1 e corpor,n & e taxa# 9dividual1 e/ate or tru/ is requir$ 0law 6file an annual return ( 9come 9 prescrib$ =m & 6det]m9e ! taxes paya# =! ye>4 ,af 9itial process+ & correc;n ( obvi\s #b #ga-ad;,r#c b#a ]rors made 9 -plet+ ! return1 & af -ple;n (a mat*+ program1 : mat*es c]ta9 9=m,n 9 ! return ) t 9 o!r returns or f o!r s\rces1 ! return may 2 select$ = audit & ?us subject$ 6a detail$ exam9,n4 ,! selec;n ( returns = audit is expla9$ 9 #ad 6#ai 2l4 --------------------------------------#b #e4 ,! ,9come ,tax ,act requires taxpay]s 6keep s* records & books ( a3.t z >e requir$ 6det]m9e ! taxes paya# & au?orizes ! ,de"p;t 6audit ^! = any purpose relat$ 6! 5=ce;t or adm9i/r,n (! ,act4 ,6? 5d1 ! ,act fur!r au?orizes ! ,de"p;t 6reque/ & rcv f any p]son 9=m,n1 records1 docu;ts etc1 )9 a r1sona#1 /ipulat$ "t4 #f4 ,"u ! ,act1 ! ,de"p;t may re-assess tax returns3 7a7 at any "t 9 cases ( fraud or misrepres5t,n1 or ": a waiv]1 specify+ matt]s on : a reassess;t may 2 issu$1 has be5 fil$2 or #c #ga-ad;,r#c a#b 7b7 at any "t up 6#d ye>s af ! date ( mail+ ! orig9al assess;t1 9 all o!r cases4 ,! taxpay]s #g4 ,(! #ae million 9dividuals :o fil$ returns =! #aiha tax,n ye>1 approximately eiy or wage e>n]s1 p5.n]s1 etc42 ! rema9+ tw5ty p]c5t 7 p]sons report+ 9come f un9corporat$ busi;ses1 profes.ns1 f>m+1 fi%+1 & 9ve/;ts1 r5tals & -mis.ns4 ,9 a4i;n "s #ejj1jjj corpor,ns & #bjj1jjj tru/s fil$ returns =! same ye>4 #h4 ,wage & sal>y e>n]s pres5t relatively few -pli.e pro#ms4 ,=! mo/ "p1 _! taxes >e collect$ "? payroll deduc;ns & _! 9comes >e r1dily v]ifi$ 0ref];e 69=m,n fil$ 0_! employ]s4 ,! require;t 6ma9ta9 books & records has ll applic,n 6^! taxpay]s &1 save = c]ta9 cases1 s* z :5 ! deduc;n ( #d #ga-ad;,r#c b#b "s exp5ses f wages & sal>y may 2 p]mitt$1 "! is ll ne$ = audit activ;y4 ,! ,de"p;t's audit program is direct$ ma9ly at ^? 9dividuals deriv+ 9come f busi;ses & profes.ns1 z well z corpor,ns & tru/s4 ,audit programs #i4 ,! foll[+ pr9ciples >e obs]v$ 9 develop+ ! audit program3 7a7 ,total -pli.e is1 & w rema91 an elusive goal2 7b7 ,! mo/ e6ective & l1/ exp5sive =m ( -pli.e is volunt>y -pli.e2 7c7 ,recov]+ undcld taxes 5c\rages volunt>y -pli.e2 7d7 ,! recov]y ( undcld taxes cd !oretic,y 2 obta9$ 0a -plete audit e f\r ye>s4 ,9 c]ta9 cases1 h["e1 ! scope & -plex;y ( taxpay]s' a6airs su7e/s t = r1sons ( practicabil;y z well z ! pres]v,n ( gd rel,ns ) ^! taxpay]s1 audits 2 s*$ul$ m #e #ga-ad;,r#c c#b frequ5tly & cov] less ?an a f\r ye> p]iod2 7e7 ,ea* taxpay] gr\p %d rcv at l1/ a nom9al am.t ( audit att5;n3 --------------------------------------#c 7f7 ,categoriz+ taxpay]s = audit purposes %d 2 d"o on a r,nal & im"pial basis4 ,taxpay]s ( any gr\p %d 2 satisfi$ t ! audit program is bas$ on fair & non-4crim9atory crit]ia4 #aj4 ,! applic,n ( ^! pr9ciples is review$ 3t9u\sly1 by 7a7 analyz+ & evaluat+ ! results ( -plet$ audits2 7b7 -p>+ audit results 6! audit programs & evaluat+ v>i.es2 7c7 3sid]+ ! e6ect ( audit ac;ns on -pli.e2 7d7 prep>+ alt]native audit programs %[+ di6]5t cov]age emphasis & te*niques direct$ t[>ds id5tifi$ >1s ( non-compli.e2 #f #ga-ad;,r#c a#c 7e7 3duct+ -pli.e m1sure;t surveys ( v>i\s taxpay] gr\ps2 7f7 rese>*+ alt]natives 6me?ods ( taxpay] classific,n & gr\p+4 #aa4 ,ea* ye> ! audit program is modifi$ 9 keep+ )! res\rces allott$ 6! ,de"p;t4 ,9 ord] 6make optimum use ( limit$ res\rces1 c>e;l 3sid],n is giv5 6id5tify+ ^? gr\ps ( taxpay]s or organiz,ns mo/ 9 ne$ ( att5;n & select+ audit ac;ns mo/ likely 6improve -pli.e4 #ab4 ,ess5ti,y1 ! audit program is bas$ on ! e/imat$ numb] ( returns fil$ 0ea* taxpay] gr\p1 &! numb] ( returns t c 2 audit$ )! availa# /aff4 ,v>i,ns 9 cov]age >e 9flu;ed 0! degree ( non- compli.e )9 v>i\s taxpay] gr\ps z m1sur$ 0results f previ\s audit programs & -pli.e m1sure;t surveys4 #ac4 ,! curr5t gr\p+ ( taxpay]s 9to 8categories0 is q detail$4 ,)9 ! 9itial classific,n 0type ( return 7,t#a1 ,t#b1 ,t#c71 categories >e #g #ga-ad;,r#c b#c e/abli%$ 0type ( o3up,n or busi;s1 gross 9come1 net 9come1 & any o!r relevant & im"pial crit]ia4 ,selec;n ( files = audit--,o!r ?an projects #ad4 ,! selec;n ( returns 6be audit$ is grtly facilitat$ 0! -put] records ( all returns fil$4 ,? all[s returns 6be sort$ 96v>i\s gr\p+s 9 ord] t ! selec;n crit]ia c 2 appli$4 ,9 "s cases sophi/icat$ -p>isons >e made ( select$ f9ancial 9=m,n ( curr5t & prior ye>s & 2t taxpay]s 5gag$ 9 simil> busi;ses or o3up,ns4 ,^! sy/ems g5]ate li/s ( returns = pot5tial audit selec;n f : specific returns >e *os5 0sup]visors 9 ea* ,4trict ,(fice4 --------------------------------------#d #ae4 ,"! >e at pres5t no rigid rules =! scre5] 6foll[ o!r ?an ! dictates ( objectiv;y & im"pial;y4 ,-put]iz$ #h #ga-ad;,r#c a#d selec;n crit]ia >e 2+ p]fect$ on an ongo+ basis4 #af4 ,:ile ! major;y ( files audit$ >e select$ 9 ! scre5+ process describ$ abv1 "! >e ?ree o!r -mon m1ns ( selec;n4 ,^! >e3 7a7 ,audit projects--,frequ5tly1 ! -pli.e (a "picul> gr\p ( taxpay]s is te/$4 ,if ! te/ results 9dicate t "! is significant non-compli.e )9 ! gr\p1 xs memb]s may -e "u audit on a project basis : may h local1 regional or n,nal applic,n4 7b7 ,l1ds--,9=m,n f o!r files1 f audits or 9ve/ig,ns or f \tside s\rces 9clud+ 9=m]s may l1d 6! selec;n (a "picul> file = audit2 7c7 ,second>y files--,a file may 2 select$ = audit 2c ( xs associ,n ) ano!r file previ\sly select$4 ,= example1 if s"eal taxpay]s %>e a s+le place ( busi;s & >e "u ! same 3trol1 & "o ( _! files has be5 select$ = audit1 x is usu,y m #i #ga-ad;,r#c b#d 3v5i5t bo? =! ,de"p;t &! taxpay]s 6h all ! records exam9$ dur+ ! same audit 5gage;t4 ,9 a4i;n1 ! a6airs ( s* taxpay]s >e (t5 s 9t]wov5 z 6require ! auditor 6exam9e !m tgr4 ,-pli.e m1sure;t audits #ag4 ,a -pli.e m1sure;t survey1 us+ /ati/ical sampl+ te*niques attempts 6e/abli% ! degree ( non-compli.e 9 v>i\s sectors (! popul,n z well z 9 ! 5tire popul,n4 #ah4 ,0audit+ a r&omly select$ sample ( returns & exam9+ ! tax recov]ies f ? sample1 x is possi# 6project 7)9 c]ta9 tol].es ( probabil;y7 ! pot5tial tax recov]ies =! :ole gr\p4 ,? 3/itutes a m1sure;t (! am.t & propor;ns ( non- compli.e4 ,0p]iodic,y *eck+ ! non- compli.e =a "picul> gr\p ( taxpay]s1 9 rel,n 6audit activ;y )9 t gr\p1 x is possi# 6e/imate ! e6ects ( audit on -pli.e4 ,9t5sific,n or reduc;n ( #aj #ga-ad;,r#c c#d audit ef=t takes place dep5d+ on :e!r ! -pli.e has 9cr1s$ or decr1s$ 9 t gr\p4 #ai4 ,a4i;nal data collect$ f ^! sample audits is -put] analyz$ 9 an attempt 6detect patt]ns : cd 2 help;l 9 ! future selec;n ( files = audit4 --------------------------------------#e ,audit ,activities #bj4 ,! 8field audit0 is ! ma9 tool 9 ! ,de"p;t's audit program4 ,? ac;n c require f a few h\rs 6s"eal weeks dep5d+ on ! nature (! exam9,n &/or ! size & -plex;y (! taxpay]'s op],ns4 ,! 8field audit0 is usu,y a detail$ b "s"ts re/rict$ exam9,n ( books & records norm,y 3duct$ at ! taxpay]'s place ( busi;s4 ,! field audit c 2 3duct$ 0"o auditor or a t1m ( auditors4 ,t1m audits use two or m auditors & may 9clude 9dividuals ) di6]5t skills s* z electronic data process+ &1 z circum/.es #aa #ga-ad;,r#c a#e require1 may 2 direct$ 0a case manag]4 ,ano!r =m ( audit is ! 9du/ry-wide audit1 : 9volves ! coord9at$ audits (a numb] ( corpor,ns )9 "o 9du/ry4 ,o!r speciali/s1 s* z ,busi;s ,equ;y ,valuators & ,r1l ,e/ate ,apprais]s1 >e availa# 6assi/ auditors 9 situ,ns 3c]n+ valu,ns & appraisals ( equities & v>i\s prop]ties respectively4 #ba4 ,2f 2g9n+ a field audit1 ! auditor w 3tact ! taxpay] 6>range a 3v5i5t date 6-m;e ! audit & w !n 2g9 a review (! taxpay]'s file4 ,9 ? prelim9>y review1 ! auditor exam9es ! return select$ = audit1 ! atta*$ f9ancial /ate;ts = prior ye>s1 audit reports f previ\s audits & any o!r 9=m,n on file4 ,9 s do+1 ! auditor c plan1 9 a g5]al way1 an approa* 6! audit & prep>e a li/ ( qu]ies 6raise4 #bb4 ,on >riv+ at ! taxpay]'s place ( busi;s1 ! auditor w pres5t an (ficial id5tific,n c>d4 ,2f 2g9n+ ! exam9,n ( books & records1 ! auditor may #ab #ga-ad;,r#c b#e want 64cuss )! taxpay] ! g5]al nature (! busi;s or t\r ! premises 6ga9 a bett] "u/&+ (! transac;ns record$ 9 ! books4 ,coop],n 0! taxpay] 9 ? reg>d p]mits a fa/] & m e6ici5t audit & is1 3sequ5tly1 ( mutual b5efit4 #bc4 ,! scope (! audit is det]m9$ 0! auditor )! advice & direc;n (a sup]visor4 ,!y decide : records %d 2 exam9$ & :at audit te*niques %d 2 employ$4 ,! audit mie records & m9utes1 etc4 ,"?\t ! audit1 ! auditor may ne$ 6obta9 9=m,n & assi/.e f ! employees (! taxpay]1 "picul>ly ^? on ! a3.t+ /aff4 --------------------------------------#f #bd4 ,9 a small m9or;y ( cases 7= example1 :5 ! records >e 9adequate1 or ! 9come report$ appe>s 9consi/5t #ac #ga-ad;,r#c a#f )! taxpay]'s /&>d ( liv+7 ! auditor may h net wor? /ate;ts prep>$ 6det]m9e 9come1 or 63firm 9come e/abli%$ 0o!r audit approa*es4 #be4 ,! auditor does n usu,y "q items "o 0"o z ! exam9,n proce$s s9ce _m w answ] !mvs dur+ ! c\rse (! audit4 ,! prelim9>y li/ ( qu]ies w 2 modifi$ & p]iodic,y a gr\p ( \t/&+ "qs w 2 pres5t$ 6! taxpay]4 ,%d ! taxpay]'s return require an adju/;t ! /eps describ$ "u ! h1d+ 8,reassess;t0 >e tak54 ,delays 9 audit #bf4 ,al? ! actual "t ( audit may 2 only "o or two weeks1 ! elaps$ "t f />t 6f9i% may 2 l;g]4 ,unavoida# delays may o3ur :5 ! taxpay] wi%es 63sult ) advis]s1 or is call$ \ ( t[n 2f -ple;n (! audit4 ,simil>ly1 ! auditor may cause ! delay 0decid+ 6reque/ an #ad #ga-ad;,r#c b#f 9t]pret,n f ,h1d ,(fice on a "picul>ly -plex or 3t5ti\s po9t ( law4 #bg4 ,"s"ts1 h["e1 unnec delays >e caus$ 0taxpay]s or _! repres5tatives fail+ 6provide 9=m,n or docu;ts z reque/$4 ,fac$ ) ? situ,n1 ! auditor c obta9 ! 9=m,n1 by 7a7 a writt5 reque/ 6! taxpay] &/or ! taxpay]'s repres5tative4 ,! taxpay] or a repres5tative w 2 giv5 a r1sona# p]iod 6provide ! 9=m,n4 7b7 ,a =mal require;t "u ! ,act 73vic;n = failure 6-ply wd result 9 a f9e74 7c7 ,a reassess;t bas$ on ! 9complete 9=m,n availa# 764pute ! reassess;t1 ! taxpay] mibitr>y me?od \tl9$ 9 7c7 abv4 ,pro#ms c usu,y 2 avoid$ if ! taxpay] advises ! auditor ( any valid r1son = delay 9 provid+ ! reque/$ 9=m,n4 #ae ,det]m9,n ( tax c#f #bi4 ,x %d 2 rememb]$ t ! role (! auditor is 6det]m9e ! correct tax paya#1 ev5 if ? 9volves a d[nw>d adju/;t ( tax &a 3sequ5t refund4 #cj4 ,9 ! det]m9,n (! correct tax1 ! auditor w n *all5ge g5],y a3ept$ a3.t+ pr9ciples z obs]v$ 0! taxpay] un.s3 --------------------------------------#g 7a7 ,! taxpay] has be5 9consi/5t 9 _! applic,n2 7b7 ,a c]ta9 practice is specific,y prohibit$ 0! ,9come ,tax ,act or ,regul,ns2 7c7 ,"! is legal prec$5t = n recogniz+ ! pr9ciple = tax purposes2 7d7 ,x appe>s ! pr9ciple is 2+ appli$ only z "p (a s*eme = tax eva.n or tax avoid.e4 ,reassess;ts #ca4 ,:5 an audit is -plet$1 ! auditor may propose 6adju/ ! tax paya# #af #ga-ad;,r#c a#g 0reassess+ ! taxpay]'s return4 ,9iti,y ! proposal w 2 4cuss$ )! taxpay] &/or repres5tative &1 if !y reque/ or x is r1sona# 6expect t ! taxpay] w ne$ an opportun;y 6analyse ! propos$ adju/;ts1 ! auditor w 3firm ! proposal 9 writ+ & all[ a r1sona# p]iod 9 : 6make repres5t,ns4 ,if ! taxpay] is 9 full agree;t )! *anges1 ! auditor may proce$ )! reassess;t )\t a writt5 proposal4 #cb4 ,if ! auditor does n h any propos$ adju/;ts 6! taxpay]'s 9come tax return1 ! auditor w s notify ! taxpay] &/or repres5tative4 #cc4 ,%d an audit 2 delay$ 0! circum/.es describ$ 9 #bg abv &a reassess;t propos$ on ! basis ( availa# 9=m,n1 ! taxpay] w 2 advis$ (! propos$ *ange 9 writ+ & giv5 a r1sona# p]iod 6provide ! miss+ 9=m,n4 ,if ! taxpay] provides ! reque/$ 9=m,n 9 ? 9t]val & %d x alt] ! auditor's propos$ reassess;t1 ! taxpay] w 2 notifi$ z 9 #ca abv4 #ag #ga-ad;,r#c b#g #cd4 ,! policy ( taxpay] notific,n does n apply :5 ! ,de"p;t suspects ! taxpay] is attempt+ 6avoid pay;t ( taxes1 z 3templat$ 0subsec;n #aeh7#b7 (! ,act4 ,= m 9=m,n on ! subject ( avoid+ pay;t ( assess$ taxes1 see ,9=m,n ,circul> #ge-af;,r1 8,collec;n ,policy40 ,reassess;t ( prior ye>'s returns #ce4 ,! subject ( reassess+ prior ye>s' returns is d1lt ) 9 ,9=m,n ,circul> #ge-g;,r#b1 8,reassess;t (a ,return ( ,9come04 --------------------------------------#h ,audit review #cf4 ,) audit activities 2+ 3duct$ 9 #bh ,4trict ,(fices1 ! ,de"p;t is 3c]n$ ) a*iev+ uni=m;y ( 9t]pret,n & applic,n (! law4 ,? is ! prime objective (! audit review sy/em : 5compasses #ah #ga-ad;,r#c a#h ! ,4trict ,(fices & ,h1d ,(fice4 ,ea* ,4trict ,(fice has a review sec;n responsi# = a*iev+ ? objective )9 ! ,4trict :ile ! ,audit ,programs ,divi.n ( ,h1d ,(fice is *>g$ ) 5sur+ uni=m;y acr ! c.try4 #ai