Toronto Tax Lawyer - Tax Audits

Find A Toronto Tax Lawyer For Tax Audits

Toronto Tax Lawyer - Audits

What Is A Tax Audit?

At some point or another in your life, you’ve come across the term audit. In everyday parlance, we understand it to mean the close examination of a set of numbers. But before we delve into what exactly a tax audit is, let’s set the foundation for a few important points. Firstly, the tax system in Canada is based on a system of self-assessment. What that means is it is your responsibility to report your total income to the Canada Revenue Agency (CRA) every year, using either a T1 or a T2 income tax return. Because the system is based on self-assessment, the CRA uses the tax audit to ensure that the income people are reporting is accurate. Specifically, the CRA is on the lookout for errors, intentional misstatements, and/or disputable positions.


So, what exactly is a tax audit? Simply put, a tax audit is the examination of an individual’s tax returns, as well as the supporting documentation that is filled with it, to ensure that the income declared and the expenses reported by the taxpayer are supported by financial records and expense receipts. Typically, the CRA auditor will request to examine the individual’s books, records, banking statements, and expense receipts. For corporations, the CRA will usually request its minute book to justify any dividends declared, or bonuses paid by the company in that year. The audit usually begins with the individual under audit completing a questionnaire, the answers to which will be heavily scrutinized, and any incorrect information that’s provided will raise suspicions and may even be used against the taxpayer at some later stage.


At LawyerSelect.ca, we work with some of the most competent Toronto Tax Lawyers, who specialize in representing taxpayers who are undergoing a tax audit. If you’re currently, or will be, subject to a tax audit, contact us today and we’ll put you in touch with the best Toronto Tax Lawyer for your matter.

What Is The Procedure In A Tax Audit?

Once the CRA auditor receives the required information from the taxpayer, they’ll usually begin by testing the validity and truthfulness of the information. To do so, a CRA auditor will review all credible sources of information that’s available to them, such as individual/company websites, publicly available statistics or information, social media accounts, as well as any other credible sources. If their search turns up novel information, they’ll use that to request further information from the taxpayer, which may even include third-party requests for information – requests from individuals or companies other than the taxpayer. Based on the information that they’ve gathered, the CRA auditor will assess whether the taxpayer’s lifestyle matches up with their declared income. If the auditor feels that there’s a discrepancy, they’ll delve deeper into the taxpayer’s records. You can avoid the heartache associated with tax audits by hiring a competent Toronto Tax Lawyer to advise and represent you.


What Are Some Of The Reasons For A Tax Audit?

While there’s no exhaustive list of reasons why a taxpayer is audited, there are some commonly occurring reasons that the CRA is known to pursue. Some of those reasons are:

  • Industry audit initiatives. This is where the CRA selects a particular industry and audits some of the individuals or companies doing business in that industry.
  • Random selection of individuals/companies for audit.
  • Tips the CRA may receive in regards to a particular individual or company that is suspected to have, or is, engaging in some form of tax evasion.
  • Previous instances of non-compliance. This is where a particular taxpayer who is known to have engaged in some form of illicit tax practices in the past, is audited again to ensure their compliance.


Beginning in 2011, the CRA began a controversial practice where they target individuals, and their families, whom they know to have a high net worth. Many commentators have expressed concerns that singling out individuals for a tax audit because they happen to be wealth is not only discriminatory, but an all-in-all bad policy to adopt as it may have a cooling effect on the ambitions of motivated taxpayers.


At LawyerSelect.ca, we work with some of the most competent Toronto Tax Lawyers, who specialize in representing taxpayers who are undergoing a tax audit. If you’re currently, or will be, subject to a tax audit, contact us today and we’ll put you in touch with the best Toronto Tax Lawyer for your matter.

What Is The CRA Tax Auditor Looking For?

There’s no one thing that’s on the radar of the CRA tax auditor, but rather, a multitude of different nuanced pieces of information. The focus of that information, however, is to disclose any errors or omissions made by the taxpayer in his/her tax return. The follow is a list of issues that, if discovered by a CRA auditor, could lead to a tax assessment, and may even result in financial penalties for tax evasion:

  • Expenses that were overstated.
  • Deductions that were overstated.
  • Use of income tax credits that the taxpayer wasn’t eligible for.
  • Earnings that were unreported, or underreported.
  • Cash sales and transactions that were unreported.
  • Income generated from online sources that were unreported.
  • Income generated from offshore sources that were unreported.
  • Assets held, or obtained, from offshore sources that were unreported.
  • Credits claimed by the taxpayer that did not find evidentiary support in the receipts they submitted.
  • Personal expenses claimed by the taxpayer under a business expense.
  • Shareholder loans that weren’t repaid by the taxpayer within the required timeframe – two corporate year ends.

Why Do I Need A Toronto Tax Lawyer To Represent Me During An Audit?

Let’s not kid ourselves. The Canadian tax system is insanely complicated, and requires a competent Toronto Tax Lawyer to navigate successfully. It is important to note that every Canadian taxpayer has the legal right to be represented by a professional at all stages of the audit process. That can include tax lawyers, accountants, forensic auditors, and other tax professionals. The reason such a right is guaranteed to every taxpayer under the law, is because the law recognizes that there’s an imbalance of power between a layman taxpayer and a CRA auditor, who is well-versed on the Canadian tax system. As such, in order to level the playing field, the law mandates that each taxpayer be guaranteed a right to professional representation at all stages in the tax audit process. Therefore, you should never meet with a CRA auditor while unrepresented, as there will be a distinct imbalance in both knowledge and power that can have serious long term consequences to the taxpayer. For example, any incorrect information provided by the taxpayer to the CRA auditor (even if provided honestly without knowledge of its falsity) will almost certainly be used against the taxpayer. The CRA auditor is also authorized to make notes during any such meeting, which they may incorrectly understand or record. Without a knowledgeable Toronto Tax Lawyer to spot any such mistake, the incorrect information recorded by the CRA auditor may lay the groundwork for a subsequent tax audit.


At LawyerSelect.ca, we fully recognize the importance of a tax audit, and we know exactly what is at stake for you. That’s why we’ll work hard to connect you with a Toronto Tax Lawyer who specializes in matters like yours, and who can competently represent you during the tax audit process.  

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