The HST Blog : Canada Harmonized Sales Tax Lawyer Cyndee Todgham Cherniak for Assessments, PST & RST Issues in Ontario, British Columbia & Quebec

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I am often reminded of President Ronald Reagan's famous quote when talking to a person who has received a "nice" letter from the tax authorities informing them about an upcoming sales tax audit of their business - "The nine most terrifying words in the English language are, 'I'm from the government and I'm here to help.'"

The truth is that a sales tax auditor is coming to visit to find non-compliance with sales tax laws and yes, "they really are out to get you".  They may phrase their intentions in the positive.  They may say that they are there to confirm compliance with sales tax laws. However, it is my experience that most young auditors are eager to show their bosses in the tax authorities that they are good at their job, which is finding the mistakes.  The older auditors are jaded and they take the Dr. House approach "everybody lies".  There are some auditors who have industry specific knowledge and a positive approach (I can recall an Ontario retail sales tax auditor who audited a bar owner client 4-5 years back), but they are the special ones.  This category of auditors know that no one is perfect and they deal with the imperfections with dignity and respect.  They show respect for taxpayer fairness (like taxpayers are treated the same) and fair treatment of taxpayers.

Sales tax auditors ask in their nice letter concerning the audit for information to be available for their review when they arrive to conduct the audit.  During the audit they ask questions and ask for more documents to be made available for their review.  I always recommend that a client organize all the requested documents prior to the arrival of the auditor and for the client to have those documents in folders on the table/desk/work area the auditor will use during the audit.  I also recommend that the client undertake their own sample review two weeks before the scheduled audit to find the mistakes before the auditor. This is the equivalent of looking under the bed for monsters.

If I am called in at the time the letter arrives, I ask the same questions that the auditor will ask about the business.  If there is time, I help the client write a customized memo to the auditor about their business, the sales tax laws that are applicable and the tax authority's administrative statements and ruling letters that are applicable. This is the equivalent of becoming comfortable in ones surroundings and knowing how to respond to dangers that may arise.

A business owner should not be paranoid, but should be vigilant.  The business owner can be pro-active.  The business owner can participate in the audit process in a way that reduces the stress and feeling of lack of control.