What is an Audit?
An audit is a detailed examination of your tax return. It will generally begin with a letter or notice listing all the records you will need to produce at your audit appointment. After the auditor has completed the audit, you may receive an assessment or reassessment letter indicating additional taxes owed plus interest and penalties.
Most returns are selected for audit from a comparison of selected financial information for current and previous years of taxpayers engaged in similar businesses or occupations. Specific returns are chosen from computer-generated lists of returns for potential audit.
Common ways of selecting returns for audit:
- Computer-generated lists
- Audit projects
- Leads
- Secondary files
What is a Review?
Returns are reviewed for income, deductions, and credits in an effort to promote taxpayer compliance and awareness of tax laws by identifying common areas of misunderstanding. Generally, a review takes place before an audit occurs, but the outcome of a review does not always result in an audit.
There are a number of reasons why a tax return may be selected for review under the Pre-Assessment Review, Processing Review or Matching programs:
- Random selection
- Comparison of information to third-party information sources, such as T4 information slips
- Types of deductions or credits claimed and an individual's review history
The CRA initially processes most returns without conducting a manual review of the information filed so that it can send out Notices of Assessment as quickly as possible. However, all returns are screened by the agency's computer system when the returns are filed and may be subject to review at a later date.