CRA audit (books and records review)

A seller or buyer meets an audit when the CRA reviews a business before or after closing. If the target is a corporation whose shares are being bought, ask whether an open or later audit concerns years the buyer did not own. See whether the CRA can challenge a purchase price allocation years later.

How an audit runs

The CRA’s guide says an auditor examines books and records, documents and information. If the audit is not on-site it takes place at a CRA office. If a return has to be reassessed, the taxpayer receives a proposal letter explaining why, and a taxpayer who disagrees with a reassessment has the right to appeal. Section 231.1 of the Income Tax Act lets an authorized person, at all reasonable times and for any purpose related to the administration or enforcement of the Act, inspect, audit or examine documents and require all reasonable assistance; entering a dwelling-house without the occupant’s consent needs a warrant under subsection (3). The CRA says records generally must be kept for a minimum of six years.

What to ask

• Whether an audit is open, or has closed, and which years it covered
• The proposal letter and any notice of reassessment
• Where the records for those years are held
• How the agreement allocates responsibility for a reassessment of years before closing