E-NEWSLETTER SIGNUPWHAT IN THE WORLD IS AUDIT INSURANCE? AND WHY IS MY ACCOUNTANT OFFERING SUCH A THING?
Sharon Perry prides herself on being in the know for the latest and greatest in all things accounting, tax and small business. When it comes to professional development, two main areas that Sharon especially focuses on is CRA and learning from her colleagues. Every opportunity that comes her way with CRA agents, Sharon does her best to attend. These include liaison meetings as well as special round table invites between CPABC and CRA.
Why is it so important? These meetings are where Sharon learns what CRA is up to. Who are they auditing? Are they targeting specific types of income, expenses, deductions or credits? What new methods have they implemented or are planning to implement? Having these answers and more, enhances Sharon’s ability to provide the best service for her clients.
Similarly, learning from her colleagues is also extremely important. For many years (2015-2022), Sharon was on the Steering Committee for the Small Practitioners Forum with CPABC. The Forum meets 3 times a year to discuss our successes and challenges from HR to IT to Tax and more. Although not currently on the Steering Committee, Sharon continues to attend regularly. This is where we learn from each other but more so, connections are made through this group to keep our conversations going throughout the year so when we face an issue, we have colleagues, or rather friends, who we can reach out to and ask.
Through this Forum, Sharon learned about Audit Insurance and with 20+ years of experience, Sharon is finding that CRA is auditing WAY more these days, especially considering all the COVID benefits, rebates, etc. According to the latest stats provided by Audit Insurance, it is up 20% and that is only based on the firms opting in to this insurance for their clients.
Most taxpayers aren’t trying to scam the system or claim what they are not eligible for. Most taxpayers are just trying to do what they are obligated to do which is file their taxes. You pay an Accountant to do this and then CRA sends you a Notice of Assessment so it must be done. They must have accepted it as is. And then 3 months (can be up to 3 years generally) goes by and you receive a letter. CRA wants more information. You already paid your Accountant to prepare and file your taxes. But what wasn’t included in the cost is dealing with these CRA requests for more information.
These letters can range from a simple request of your tuition slip, childcare receipts, donations, etc. Or maybe a more complicated request where you have a small business, and they want all invoices and receipts for your expenses. Or perhaps you use your vehicle for work purposes and they want to audit the vehicle expenses.
Responding to these letters are often more time-consuming than the preparation of your taxes, especially when they can sometimes come a few years after the fact. Getting another bill from your Accountant isn’t necessarily an ideal scenario either. But it is CRA's job to obtain proof with random sampling and it is your responsibility as a taxpayer to provide the support when they request it. And this is where Audit Insurance comes in.
Audit Insurance is an annual fee that will cover your Accounting fees related to audits with CRA and PST through the Ministry of Finance. You must have an existing policy at the time you receive an audit letter for the insurance to cover the professional fees. While most types of audits are included, there are some that are not. Some examples of each are as follows:
- Included: corporate tax, sole proprietors, Payroll, GST, PST, WorkSafeBC related to payroll, UHT, CEWS, CERS
- Not Included: CERB, tax filings outside of Canada, pre-assessment reviews for personal taxes
Responding to a CRA audit generally costs a minimum of $1,000 while some cost upwards of $10,000. What do we know? CRA is auditing way more. And it is costly.
The cost of Audit Insurance ranges depending on your tax situation (i.e. single, married, sole proprietor, incorporated or trust); from as little as $200 (plus GST) to about $1,445 (plus GST). Paying a small annual fee, which is based on your company revenue or type of personal tax return, could help avoid a much larger invoice for our professional fees.
This product is absolutely your choice and your choice alone. There is no obligation as a client to accept this insurance however we will always recommend it when your tax situation is a target area with CRA.
If you are a client and want more information, please contact us.
***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.