Canada's tax system is based on self-assessment. This means that individuals voluntarily complete an income tax return to report their annual income and claim all deductions or credits that apply to their situation. In this way, you are able to calculate the amount owing or the refund to be received
The hereinafter text refers to the the Income Tax Act (federal), and the Canada Revenue Agency (CRA). The Québec Taxation Act does have very similar dispositions and the policies of both the CRA and de QRA (Québec Revenue Agency) are somewhat also similar.
After initial processing and correction of obvious errors made in completing the return, and after completion of a matching program, which matches certain information in the return with that in other returns or from other sources, the return may be selected for audit and thus subjected to a detailed examination.
Canada's tax system is based on self-assessment. This means that individuals voluntarily complete an income tax return to report their annual income and claim all deductions or credits that apply to their situation. Tax authorities have large powers to verify that taxpayers apply tax law correctly.
The Income Tax Act stipulates that the CRA has the power to check all the documents, records and information of a taxpayer. It also has the power to ask anybody on the premises for help in completing its mission.
231.1 (1) An authorized person may, at all reasonable times, for any purpose related to the administration or enforcement of this Act,
- (a) inspect, audit or examine the books and records of a taxpayer and any document of the taxpayer or of any other person that relates or may relate to the information that is or should be in the books or records of the taxpayer or to any amount payable by the taxpayer under this Act, and
- (b) examine property in an inventory of a taxpayer and any property or process of, or matter relating to, the taxpayer or any other person, an examination of which may assist the authorized person in determining the accuracy of the inventory of the taxpayer or in ascertaining the information that is or should be in the books or records of the taxpayer or any amount payable by the taxpayer under this Act,
Access to documents, records
During the audit , the CRA can enter into any premises or place where any business is carried on, any property is kept, anything is done in connection with any business or any books or records are or should be kept. In addition, the agency can ask all proper questions relating to the administration or enforcement of this Act.
One of the most important limitations on the agencies’ ability to compel the production of information is solicitor-client privilege protected by the Charter of Rights and Freedoms. The Charter also prohibits seizures that are unreasonable, any request must be reasonable in order to be enforceable.
Access to the taxpayer’s place of business
Normally, it is expected that the audit take place at your place of business (on-site audit).
Even if the auditor is authorized to enter into any premises or place where any business is carried on, any property is kept, anything is done in connection with any business or any books or records are or should be kept, there are some limitations. It must be conducted at an appropriate time, in the context of the application of the law. In the case of a dwelling-house, an authorized person may not enter that dwelling-house without the consent of the occupant except under the authority of a warrant.
Peremptory requests
The tax authorities have the power to order the taxpayer to provide specific documents within a certain time frame. To establish the reasonableness of the request, the costs, the type of documents, the circumstances are factors to be ascertained.
This power is often used, and apart from obtaining a longer delay to comply, there are not many instances where a peremptory request can be fought. Failure to comply can result in hefty fines, even jail time.
