On February 20, 2018, the government announced proposed changes to the provincial tax laws. On a date to be specified by regulation, certain consumption tax Acts are amended to allow a fee to be charged to recover costs of out-of-province audits.
Your financial records may be audited to ensure you're charging and paying tax correctly. During an audit we'll look at your records and identify any areas where you may not be doing this correctly.
You may be audited for the following reasons:
- There may be a special audit project or legislated program occurring and you were selected for the project or program
- You may be selected based on risk of misapplication of tax
- You may be referred to the ministry for audit
- If you’ve submitted a refund claim you may be audited as part of the review to ensure that all taxes due have been paid before the refund is processed
Audits may also be conducted under the following programs:
- Forest Revenue Audit Program: to ensure timber volumes are reported completely and accurately if you harvest, purchase or sell timber from Crown Land in B.C.
- International Business Activity: to ensure registrations and refunds under this program have been applied correctly
- Oil and Natural Gas Validations and Audits: to review and validate all royalty and tax transactions reported in B.C.
Audits under the Income Tax Act (B.C.) are generally administered by the Canada Revenue Agency (CRA). For more information, contact the CRA or see their website about tax audits.
What Happens During an Audit?
If you've been selected for an audit, the auditor will contact you to arrange for a convenient time for a meeting with you or your accountant. At the meeting, the auditor will explain the general audit process and go over the Taxpayer Fairness and Service Code with you to ensure that you know what to expect as far as service standards and conduct are concerned.
Depending on the legislation under which the audit is conducted, the auditor may be looking for evidence that you:
- Charged the proper amount of tax on your taxable sales
- Paid or self-assessed tax on purchases as required
- Kept track of the tax you charged and self-assessed, and sent that money to the government on time
- Have documentation to support any tax-exempt sales and purchases made
- Are eligible for a tax credit or benefit
- Have filed your return correctly and reported the correct amount of tax
How to Prepare for an Audit
You may want to prepare and retrieve records ahead of time so that the audit can be completed as quickly as possible. In the case of records stored off-site, it’s a good idea to ask the auditor which records are needed to avoid wasting time and money.
Auditors will want to inspect both paper and electronic records. Typically, the auditor will review:
- Financial statements, like income statements and balance sheets, including any schedules of capital additions or disposals
- Records, such as general ledgers, purchase and sales journals, cash receipts, disbursement journals and insurance policies
- Contracts, such as insurance policies, transfer pricing agreements, and management and service contracts
- Other documentation, such as sales and purchase invoices, sales and purchase orders, bank statements, cancelled cheques, deposit slips, cash register tapes and detailed journal entries with supporting documentation
During the audit, the auditor may request additional information to verify the tax status of certain transactions. If necessary, you'll be given additional time to provide the requested information.
What Happens After an Audit?
When the audit is complete, the auditor will explain the results to you and make you aware of your options if you disagree with the results. If the review has determined that an amount is owed, the auditor will provide you with copies of the audit working papers and fully explain the findings. If the review has determined that you have overpaid your taxes, you may submit a refund application, together with the supporting documentation to the auditor at the time of audit or to the ministry after the audit is complete.