Taxpayer records are sometimes audited to determine if taxes have been correctly collected, reported, and paid. All taxpayers can be subject to an audit. This includes individuals and businesses located in Saskatchewan, as well as those located out of the province who carry on business in Saskatchewan.
Audit Process
If you are selected for a field or desk audit, an auditor will contact you by phone 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. For a desk audit, the taxpayer will be asked to send copies of requested records.
Audits normally cover two years, plus the current year. Audits may be extended if problems are found. The main 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:
- 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. Payment is due within 30 days from the date the assessment is issued. If you are unable to pay the assessment within the 30 days, you should immediately contact the Collections and Enforcement Section of 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 PO Box 200, Regina, S4P 2Z6.
If you disagree with the audit findings, 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.
Records Required
The auditor will normally request some or all of the following:
- 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.
Penalty and Interest Charges
The following penalties and interest charges 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 willfully 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
Interest is charged from the date the tax was to have been remitted.
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 every six months.
Audit Appeal Process
If you still have concerns after discussing your issues with the auditor, you 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 isn't 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 can't be resolved by the auditor, the supervisor will become involved and a further attempt made to reach an agreement.
If agreement on the audit findings still can't be reached, you should pay that portion of the audit to which you agree to avoid further interest accruing on those amounts. For issues where it's determined that an appeal is required, the Collections and Enforcement Section will issue a Notice of Assessment. When you receive this notice, you have 30 days to forward your reasons for an appeal to the Board of Revenue Commissioners. Your reasons for appeal should be addressed to:
Secretary, Board of Revenue Commissioners
4th Floor, Room 480
2151 Scarth Street
Regina, SK S4P 2H8
The Board will set a date to hear the appeal at which you will present the reasons for your appeal. You may represent yourself or have someone represent you, such as a lawyer or accountant. The Ministry of Finance will be represented by counsel, who will present the government's case. Decisions of the Board of Revenue Commissioners can be appealed to the Court of King's Bench.