I am often asked how the Canada Revenue Agency (“CRA”) selects its audit victims; oops, I meant to say taxpayers subject to audit. Basic instinct would suggest that certain taxpayers, certain claims and certain industries seem to trigger audits. With this in mind, I will list below how I believe the CRA may selects certain individuals and businesses for audit.
Reasons for Individuals and Corporations
I would suggest there is nothing worse than a scorned lover, a business partner you have had a falling out with or a dismissed employee to trigger a CRA audit. These individuals know your little secrets; a cash deal here, an offshore account there and a conference you expensed that was really a vacation. These people are also vindictive and in some cases, they make statements and claims that are not factual in nature; however, the claims are enough to bring the CRA to your door.
CRA also loves net worth audits. These are audits undertaken because you live in a 3,000 square foot home, have a Porsche and kids in private school, and yet show minimal income on your tax return. Typically CRA either stumbles upon these situations, or information from one of the individuals noted in the preceding paragraph provides a lead.
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