Over the past year, the Canada Revenue Agency (CRA) has significantly increased its staffing and resources dedicated to tax audits and compliance reviews. As a result, business owners across Canada are experiencing more frequent and detailed requests for information, even when their filings are accurate and up to date.
We recognize that receiving an audit or review notice can be stressful and, in many cases, costly due to the professional time required to respond properly. To help protect our clients, we want to make you aware of the option of Audit Insurance—a proactive way to safeguard yourself against the financial burden and added stress of a potential audit. By subscribing, you gain peace of mind knowing that professional fees associated with responding to an audit are covered, allowing you to focus on running your business with confidence.
To ensure you have all of the information you need to make an informed decision, we have compiled some additional detailed information to help this all make sense.
What is Audit Insurance?
Audit insurance is an insurance product designed to cover you for the professional fees associated with responding to a tax audit or review by the Canada Revenue Agency and provincial tax authorities. When you or your business are selected for audit, the process can potentially be time-consuming and expensive, even if your tax filings are correct. The costs involved in responding to the CRA can sometimes be in the thousands or tens of thousands of dollars. Audit insurance provides you with some peace of mind by covering the professional fees for responding to the tax authorities, saving you some stress and allowing you to focus on running your business.
How Does Audit Insurance Work?
When you purchase audit insurance, you pay an annual premium. If you are selected for an audit or review, your policy will cover our professional fees for responding to the CRA and provincial tax authorities. Coverage typically applies to a wide range of tax audits and reviews, including random audits, pre- and post-assessment reviews, and more complex investigations, and it covers responding on the most common types of tax issues, including personal and corporate income tax, GST/HST, payroll, and more. If you’re in an industry that is more prone to regular or frequent audits, including construction, restaurants, real estate, and others, you might appreciate the benefits of audit insurance even more. If you
need to make a claim, we facilitate the process by working with the insurer on your behalf so that you don’t need to worry about justifying how your claim is eligible for coverage.
What Audit Insurance Doesn’t Cover
The insurance will only cover claims made while the policy is in effect and will not generally cover audits or reviews that are in process at the time the policy is issued. The insurance also does not reimburse you for the cost of any tax, penalties, or interest that may be assessed.
Example
We had a client in the construction industry that was selected for a GST audit. The auditor went through everything with a fine tooth comb, thousands of records, and proposed several adjustments that increased the GST owing significantly due to our client missing some records that proved their input tax credits, some expenses which the auditor argued were personal in nature, and some other errors. While we were pretty successful in convincing the auditor to vacate their proposed assessment, the fees were significant and approached $20,000. The audit insurance policy covered all of our fees, so our client was not out of pocket!
Conclusion
Tax audits and reviews are becoming more common, and the costs of navigating them can be significant. Audit insurance is a practical way to protect both your finances and your peace of mind. If you would like to explore whether this coverage is right for you, please reach out to your Gauvreau advisor—we would be happy to introduce you to a trusted audit insurance provider we work with.