The CRA is very powerful and has many tools at its disposal for catching delinquent taxpayers. Once the CRA has contacted you about your unfiled or incorrect return, you are no longer eligible to file a VDP and penalties and criminal prosecution can apply. If you do not file an accurate and complete tax return with CRA, these are some of the ways that they find out:

1. T4 / T4A Statement of Remuneration, Pension or Other Income

This is a tax slip that is issued for individuals who provide a service. A T4 slip is prepared for employment income and a T4A can be a wide variety of reasons.When a T4 or T4A is provided to the CRA, the government will expect this income to appear on your personal tax return. If it does not, this slip also has your address on it so they know exactly where to mail you a letter requesting you to file.

2. T5018 Statement of Contract Payments

This slip is commonly provided to individuals that work in construction. It is a straight-forward slip that provides the total amount of payments that a business paid you. For example, if you do full time work for one company, they may provide you with this slip showing the amount of income earned in the year. They provide one copy of this slip to you and the other to CRA. Then when the CRA does their annual matching program, they will see that you did not report this income on your personal tax return. This may result in you receiving requests to file in the mail and ultimately the CRA will likely arbitrarily assess you based on this income.

3. Cash Deposits

The bank notifies CRA when large cash deposits are made. We have seen taxpayers contacted by CRA as a direct result of these transactions. Some have had a relative from abroad bring them money. Other deposits were as innocent as cash gifts received from a wedding. No matter the source of the cash deposits, if you cannot support them, the CRA is going to assume that this money is income. And it will be up to you to prove them otherwise.

4. Court Documents

We have seen taxpayers audited based on testimonies made in court. Many court cases are public documents that the CRA does examine for audit leads.

5. Media Appearances

If you appear in the newspaper or are interviewed on TV, the CRA is watching. It is common for the CRA to use media outlets as a source of leads. We have seen taxpayers get notices for audit shortly after appearing in the media. If you are making a public appearance promoting your business, that business better appear on your tax return and it better be accurate.

6. Land Transfers

The CRA is privy to seeing what properties are purchased and sold. If you sell a property and do not include the income from it on your tax return, there is a high chance that you will eventually be contacted regarding this transaction. We are seeing taxpayers being contacted years after the fact when supporting documentation no longer exists to support the transaction as a principal residence or capital gain rather than business income. In Toronto, condominium flipping is a current hot topic. We are regularly seeing taxpayers contacted who did not report the sale of their condo on their taxes and have now been contacted for unreported income.

7. Postal Code

Where you live often correlates to your income level. For instance, if you live in a neighbourhood with a very high average household income, but report only a small fraction of that income on your return, the question has to be asked, how are you affording to live in that neighbourhood? Perhaps you are living off investment income, or have multiple mortgages on the property, but if your income level is an outlier compared to your neighbours you may be on the receiving end of a net worth assessment audit at some point in your future.

8. Snitch Line

The Canada Revenue Agency allows for anonymous tips against fellow taxpayers. This is commonly used by ex-spouses, ex-business partners, ex-employees, etc… It just takes one phone call by someone with a grudge to unravel your offside activities. The CRA is now paying commissions based on a percentage of the tax collected as an incentive for leads.

9. Spider Software

The Canada Revenue Agency is no stranger to the internet. If you have a website promoting a business and no income on your tax return relating to that business, the CRA can find out about this. They use spider software to search the web for tax cheats.

10. Other Party Audited

This idea was discussed above. If a party you do business with is under examination by CRA it can lead to you. If the CRA looks at the amount of money paid to your company, then the equal amount should be included in your revenues. As an example, if a company has an expense for $50,000 for services to your business and you do not have nearly that much income, there is a good chance that you will be the next one audited.

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