Worry, stress, frustration, and that sinking feeling of "why me?"—that's almost every taxpayer's first reaction when they find out they're being audited. And with good reason: taxation is a complex field, and audits are often risky, protracted, and costly affairs.
While it's impossible to predict the length or scope of an audit, you can often greatly mitigate its impacts, and even its tax consequences, through careful, proactive management.
The burden of proof falls on the taxpayer
It's important to remember that in a tax audit, the
burden of proof generally falls on the taxpayer. This
means you are responsible for proving that your tax position is
sound, rather than the reverse. From the moment you receive the
audit notice until the audit closes, every interaction with the tax
authorities can directly affect the outcome of your case.
Here are some ways to manage the process effectively:
1. Get involved
Take an active role in managing your file. You know your business better than anyone and should carefully prepare or review any documents sent to the authorities. Presenting clear, consistent, and accurate information is paramount.
2. Paint a coherent picture of your business
Auditors don't know the ins and outs of your industry. By painting a clear, coherent picture of your business, you can prevent misunderstandings and help your auditor apply the proper tax rules to your situation.
3. Centralize communications
It's best to have only one person—whether it's you or your representative—interact with the authorities. This keeps responses consistent, ensures requests are addressed quickly, and reduces the risk of confusion.
4. Be meticulous
Clear, well-organized documents are essential. By preparing them meticulously, you make it easier for the tax authorities to analyze your file and reduce the likelihood that information will be misinterpreted.
5. Document all communications
Whenever possible, send information and make representations in writing. This ensures all communication can be traced and reduces any ambiguities.
6. Maintain a constructive dialogue
A good relationship with your auditor will help you understand the issues raised and address them appropriately. Openness and cooperation can work in your favour.
7. Seek expert advice
Consider consulting a tax accountant or lawyer. Depending on your needs, these specialists can assist you on a one-off or ongoing basis. Their expertise can optimize the process, help prevent mistakes, and, in some cases, greatly improve the outcome of the audit.
Tax audits are serious— but they don't have to be daunting
While some audits lead to tax disputes, thorough preparation and
solid guidance can help you close your case smoothly. By taking a
structured, proactive approach, can satisfy the tax authorities and
address irregularities before they escalate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
