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    Saturday, February 17, 2018

Taxpayer records are audited to determine if taxes have been correctly collected, reported, and paid.

Are all taxpayers audited?

All taxpayers may be subject to an audit. This includes individuals and businesses located in the Province, as well as those located out of the Province who carry on business in Saskatchewan.

I have applied for a tax refund. Why am I being audited?

Refund claims are examined in detail to ensure the refund is payable. An audit may be conducted at the same time to ensure that all taxes owing have been paid.

Why am I being audited if I do not make taxable retail sales?

Although certain businesses or taxpayers may not be making taxable sales, they are required to pay tax on purchases and leases for their own use, including equipment, supplies, and taxable services.

What happens during an audit?

If you are selected for a field or desk audit, an auditor will contact you by telephone or letter. The auditor will arrange an interview, advise what records will be examined, and ask that these records be made available at the audit location. Field audits are normally conducted at the taxpayer's place of business. In the case of a desk audit, the taxpayer will be asked to send copies of requested records for the audit.

Audits normally cover two years plus the current year. Audits may be extended if problems are found.

The principal areas of examination are your sales, tax liability account, purchases, and fixed assets. An audit may cover all or part of these areas. During the audit, the auditor will verify the following:

  • For sales and taxable services to your customers, that tax was applied and calculated correctly, and accumulated in a tax account.
  • For the tax liability account, that all taxes levied and collected have been accumulated correctly and remitted.
  • For materials and supplies acquired for your own use, that tax was paid on all taxable purchases and leases.
  • For in-shop manufacturing labour, that all taxes were calculated correctly and accumulated in a tax account.
  • For fixed assets, that tax has been properly accounted for on all acquisitions.

After the auditor has conducted the audit, it may be determined that you are properly collecting and remitting the tax, or that a tax liability exists. If the audit discovers a tax liability, the auditor will discuss the reasons with you. The auditor will also give you copies of the relevant audit working papers.

The auditor will provide you with an Assessment Notice that outlines the audit findings. If information becomes available after the audit that you feel warrants an adjustment to the assessment, please contact the auditor.

The auditor will ask you to pay the assessment by providing a cheque payable to the Minister of Finance. Please note, payment is due within 30 days from the date the Assessment Notice is issued. If you are unable to pay the assessment at this time, please provide the Collections and Enforcement Section of the Revenue Division with a proposed payment plan. Collections and Enforcement can be contacted at 1-800-667-6102 (or 787-7684 in Regina), or in writing at 2350 Albert St., Regina, S4P 4A6.

If you disagree with the audit findings, you should contact the auditor or provide a letter to the Audit Branch outlining the reasons for your objection. The branch will review your objections and provide a written response.

What records should be available for review?

The auditor will normally request some or all of the following records:

  • Financial statements (income statement and balance sheet, including any schedules of capital additions and deletions).
  • The books from which these statements are derived (e.g., general ledger, sales journal, purchases journal, general journal, cash receipts journal, cash disbursements journal).
  • Source documents, such as sales invoices, purchase invoices, import documents, tax returns, bank statements with cancelled cheques, and copies of deposit slips, contracts, and agreements.
  • Other records or correspondence that contain information pertaining to a tax issue.

If you have some records in storage, consult with the auditor to determine which documents will be required before retrieving your records from storage.

Financial statement information provides information that allows the auditor to verify that the tax information that has been reported is reasonable. It also provides the auditor with information on company acquisitions and operating expenditures.

You are required to pay tax on the cost of goods purchased for your own use. Examination of purchase invoices is the only way the auditor can verify whether tax was properly paid.

What penalty and interest applies to audit assessments?

The following penalties apply to audit assessments:

Tax on Sales

  • A penalty of 10% of the amount assessed, with no maximum, is applied to audit assessments for sales of taxable goods or services where the tax should have been collected from your customers, but was not.
  • A penalty of 25% of the amount assessed, with no maximum, is applied to audit assessments for tax that has been collected from your customers but not remitted.
  • A penalty of 100% of the amount assessed, with no maximum, may be applied to audit assessments for tax collected from your customers that wilfully has not been remitted.

Tax on Consumption

  • A penalty of 10% of the amount assessed, with no maximum, is applied to audit assessments for goods or services that were taken from inventory or purchased from a supplier who did not charge the tax, where the tax should have been self assessed, but was not.

Interest is calculated based on the prime lending rate paid by the bank holding the Government of Saskatchewan's General Revenue Fund plus three percentage points. This interest rate is adjusted semi-annually.

Where a taxpayer has paid tax in error, interest will be payable on the refund. The interest rate for refunds is the prime rate.

Why are penalty and interest assessed when errors are found?

Penalty and interest are levied on audit assessments to encourage voluntary compliance. The vast majority of businesses collect and remit tax properly. However, without a deterrent, such as penalty and interest, those businesses so inclined not to remit tax would do so without repercussion. Penalty and interest may be waived in certain situations (e.g. serious illness to a key employee).

What happens after the audit?

If a taxpayer still has concerns after discussing their issues with the auditor, they have the right to appeal the audit. In most cases, an agreement is reached between the Ministry and the taxpayer regarding the tax owing and an appeal is not required.

If you discover new information that may reduce the assessment after the audit is completed, please contact the auditor. The information will be reviewed to determine if an adjustment is warranted

The auditor will try to resolve as many of the issues with the taxpayer as possible before referring the audit to his or her supervisor or manager. If an issue cannot be resolved by the auditor, the supervisor will become involved and a further attempt is made to reach an agreement.

How do I appeal an audit assessment?

If agreement with the audit findings cannot be obtained, the taxpayer should make payment of that portion of the audit to which they agree to avoid further interest accruing on those amounts. On those issues where it is determined that an appeal is required, the Collections and Enforcement Section will issue a Notice of Assessment. When a taxpayer receives the Notice, they have 30 days to forward their reasons for the appeal to the Board of Revenue Commissioners.

The Board will then set a date for the appeal to take place. At an appeal, you will have the opportunity to present the reasons for your appeal to the Board. You may represent yourself at a hearing or have someone represent you (such as a lawyer or accountant). The Ministry of Finance will be represented by counsel at the hearing, who will present the Government's case. Decisions of the Board of Revenue Commissioners can be appealed to the Court of Queen's Bench.

Related Links

Contact information for audit inquiries, field audit offices and investigations.

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