Surviving a Canada Revenue Agency (CRA) audit is just the first step in a longer journey for small businesses found to be non-compliant. In this guide, we’ll explore the aftermath of an audit. Learn how to navigate the challenging post-audit landscape and rebuild your relationship with the CRA.
This guide is part of our series: Navigating a CRA Audit: A Guide for Small Businesses.
Check out the rest of the series here:
- CRA Audit Survival Guide: Understanding Non-Compliance and Audit Triggers
- What to Do After a CRA Audit: Recovery, Compliance, and Rebuilding Trust
- How to Survive a CRA Audit: Steps and Best Practices
The Immediate Aftermath: What to Expect
If you’ve been found non-compliant, your relationship with the CRA will change in at least some of the following ways:
- Increased scrutiny: Expect the CRA to monitor your business more closely for the next few years.
- More frequent reviews: You may be subject to more frequent desk reviews or spot checks.
- Shortened filing deadlines: The CRA may impose stricter deadlines for future tax filings.
- Potential penalties: Depending on the severity of non-compliance, you may face financial penalties or interest charges.
How to Rebuild Trust with the CRA
To improve your standing with the CRA:
- Implement all audit recommendations promptly
- File all returns and make payments on time
- Maintain meticulous records
- Consider voluntary disclosures if you discover past errors
- Engage in professional bookkeeping services to ensure ongoing compliance.
Strategies to Expedite Recovery
While there's no quick fix, certain actions can help:
- Over-communicate: Keep the CRA informed of any significant changes in your business.
- Be proactive: Address potential issues before they become problems.
- Seek professional help: Engage tax professionals or a fractional CFO to review your practices.
- Implement robust internal controls: This demonstrates your commitment to compliance.
- Consider an advance tax ruling: This can provide certainty and show good faith for complex transactions.
Avoiding Further Issues
To prevent future compliance problems:
- Invest in accounting software and training
- Regularly review and update your bookkeeping practices
- Stay informed about tax law changes
- Separate personal and business finances strictly
- Conduct internal audits periodically.
Adjusting Your Tax Strategy
In the years following an audit:
- Be conservative: This isn't the time for aggressive tax planning.
- Focus on clear-cut deductions: Avoid grey areas that might invite scrutiny.
- Document everything: Maintain thorough records for all claims.
- Consider timing: Spread significant deductions over multiple years if possible.
- Seek professional advice: Consult with tax experts before making major decisions.
CRA Scrutiny in Post-Audit Years
Expect heightened attention for 2-3 years after an audit:
- More detailed reviews of your returns
- Potential requests for additional information
- Closer examination of year-over-year changes
- Scrutiny of any unusual or large transactions
Expense Claims to Watch
Be particularly careful with:
- Home office deductions
- Vehicle expenses
- Travel and entertainment costs
- Large or unusual purchases
- Significant increases in any expense category
The Role of Professional Bookkeeping Services
Engaging a service like Enkel can be crucial in post-audit recovery:
- Ensuring ongoing compliance
- Identifying potential issues before they become problems
- Providing expert advice on tax matters
- Maintaining consistent, accurate financial records
- Assisting with CRA communications and information requests
Consider Hiring a Fractional CFO
Consider engaging a fractional CFO to:
- Develop robust financial strategies
- Implement strong internal controls
- Provide high-level financial oversight
- Assist with long-term tax planning
- Offer expertise during CRA interactions
Rebuilding Your Business
While focusing on compliance, don't lose sight of growth:
- Use the audit as a learning experience
- Implement more efficient financial processes
- Consider how improved financial management can drive business success
- Look for opportunities to streamline operations and reduce costs
- Use accurate financial data to make informed business decisions
Conclusion
Recovering from a CRA audit and non-compliance finding is a challenging process, but it's also an opportunity for positive change. By implementing robust financial practices, seeking professional assistance, and maintaining open communication with the CRA, you can not only recover from the audit but emerge as a stronger, more financially sound business.
Remember, the goal is not just to avoid future audits but to build a financially healthy business that can withstand scrutiny. With patience, diligence, and the right professional support, you can turn this challenging experience into a stepping stone for future success.
It’s also key that the prospect of an audit doesn’t prevent you from claiming every dollar your team deserves. Especially when it comes to Scientific Research & Experimental Development (SR&ED) tax credits, which can help you recoup upwards of 60 percent of costs related to research and development through government innovation tax credits.
Boast can work alongside your bookkeeping partners to maximize your access to this key source of funding, without adding pressure or putting work on your shoulders.
Talk to one of Boast’s tech and tax experts today to learn more.
