Audits play an important part in ensuring the integrity of the tax system. Without the fear of audit, an important compliance incentive is lost.
But there are audits which are well managed and those which are not. In our view an audit should:
- Be focussed on the likely issues
- Be mindful of the compliance cost to the taxpayer in light of the possible tax that might be recovered
- Be organized, as unintrusive as reasonable, and proceed without delay to a speedy conclusion.
Taxpayers under the Charter are given certain rights in dealing with an audit, such as the right to be represented, to provide only factual information, to request that questions be put in writing, to request a meeting to discuss the results before conclusions are finalized, and to refuse to provide information which is demonstratively not relevant.
The taxpayer is also to be presumed honest unless there is reason to believe otherwise.
A taxpayer in the cause of an audit must be truthful, provide relevant information, be cooperative and courteous.
With the above dynamics in place, audits should generally run smoothly and productively.
A question which often arises is the selection process for audit. We see no harm in making audit selection criteria based on risk profiles, as long as the auditor does not begin with a predisposition that the taxpayer is dishonest simply by being selected.