It now takes a year on average for CRA to audit small businesses

Small and medium-sized businesses selected by the Canada Revenue Agency for audits are waiting longer to see those audits completed — something business groups say causes unnecessary stress for owners of small businesses across Canada.

Documents tabled in Parliament show it now takes the CRA almost a year on average to conduct an audit of a small business — an average that was rising even before the pandemic hit.

While it took the CRA an average of 171 days to carry out an audit of a small or medium-sized business between April 1, 2015 and March 31, 2016, it took an average of 348 days between April 1, 2021 and March 31, 2022. At the beginning of this year, it took CRA an average of 314 days to carry out such an audit.

Corinne Pohlmann, senior vice-president of national affairs for the Canadian Federation of Independent Business (CFIB), said her members were complaining of longer CRA audit timelines even before the pandemic.

"We had been seeing over the past several years an increase ... in the length of these audits and anecdotally, more complaints about how long it was taking," Pohlmann told CBC News.

"So that is a concern, to see that some of these audits are getting up to one year long, which is a long time to feel stressed about what's going to happen in that whole process."

The CRA said the pandemic remains one reason why audits are taking longer.

It said the number of small and medium-sized business audits dropped to 11,328 in 2020/2021 from 23,135 the year before because the staff who conduct those audits had been reassigned.

"Due to the COVID-19 pandemic, several programs were suspended," the CRA said in a recent answer to a question placed on the House of Commons order paper by NDP MP Daniel Blaikie.

"Employee workloads were shifted to essential services, such as the COVID-19 benefit programs and COVID-19 related call-centre activities. Audit activity continued throughout the pandemic but was limited to high-risk audits and exceptional circumstances."

In response to questions from CBC News, the CRA also said it suspended such audits in order to help businesses during the pandemic.

"The CRA made a deliberate pause of audits, lasting approximately six months in 2020/21, for small and medium-sized businesses in recognition of the hardships caused by the COVID-19 pandemic," wrote CRA spokesperson Nina Ioussoupova in an email response.

She said operations did not return to pre-pandemic levels in 2021/22 but regular audit workloads have now resumed.

The CFIB said halting audits of small and medium-sized businesses during the pandemic was the right thing to do.

"We knew, and even asked CRA to pull back during COVID because so many businesses were shut down, were not even able to even function, that we felt the last thing [they needed] at this point was to have to go through an audit," Pohlmann said.

"So the fact that audits came down quite a bit during that period, and that they even moved people into other areas to help with services around COVID, I think all of that was kind of what had to be done."

Conservative revenue critic Adam Chambers said most small businesses have been audited very thoroughly in recent years.

"If you're a small and medium-sized business and it's taking upwards of 250 or 350 days to complete an audit, that's a significant distraction for you from running your business," Chambers said.

"Many small [or] medium-sized businesses have had a difficult time over the last couple of years, so I do think it's reasonable that they diverted some resources away to other priority areas."

New Democrat revenue critic Niki Ashton said the fact that CRA had to move staff out of auditing to handle COVID benefit programs raises questions about whether the CRA has what it needs to do its job.

"The fact that resources were diverted from auditing is a problem and really speaks to the lack of resources the CRA has to work with," Ashton said.

"We need to make sure that small and medium-sized businesses are paying their fair share and we really need to make sure that the ultra-rich are paying their fair share."

Ashton said the CRA appears to be implementing two sets of rules — one for small businesses and another for very wealthy Canadians.

"We've seen more cases go to criminal investigation and even conviction when it comes to audits of small businesses compared to the ultra-rich," she said. "So we need to make sure the CRA has the tools to go after anybody who's avoiding their fair share of taxes, and that's clearly not being done right now."

In its answer tabled in Parliament, the CRA said 304 cases involving small and medium-sized businesses have been referred to its Criminal Investigation Program since April 1, 2015, and 16 of those cases were referred to the Public Prosecution Service of Canada for possible criminal prosecution.

As of March 31, 2022 — the last date for which numbers are available — seven criminal investigations had resulted in 13 taxpayers being convicted. While the CRA publicizes convictions for breaking tax laws, it refused to identify which cases were referred to in the answer it tabled.

The period from November 2015 to March 31, 2022 saw one conviction of a high net worth individual on tax charges — and no charges laid in connection with the massive amount of offshore account information leaked in the Panama, Paradise and Pandora papers.

The CRA also was tight-lipped when asked what prompts the agency to single out some small and medium-sized businesses for audits over others.

In its answer, the CRA cited several aspects that contribute to the decision to audit a business, including leads and "other data sources," as well as "local projects, internal referrals and a strong reliance on local judgment."

"All of the SME (Small and Medium Sized Enterprises) workload are selected for audit due to some element of their tax return which presents a high degree of risk of non-compliance, relative to each of the principal programs … and their particular revenue ranges," the CRA wrote.

Ioussoupova refused to reveal exactly which risk factors CRA measures when it selects a business for an audit.

"Generally speaking, the CRA selects files to audit based on a number of conditions such as compliance history, potential for errors and types of deductions/credits claimed," she wrote.