Disclaimer: This is intended to provide information respecting Gasoline and Motive Fuel Tax and Tobacco Tax under the Gasoline and Motive Fuel Tax Act and the Tobacco Tax Act (the Acts). This should not be regarded as a replacement of the laws, regulations or administrative documents to which it refers.
Understanding Your Audit
THIS BULLETIN PROVIDES GENERAL INFORMATION ON AUDIT PROCEDURES AND WILL ASSIST YOU IN PREPARING FOR AN AUDIT.
- Why am I being audited?
- Are all taxpayers audited?
- Why am I being audited following an application for a tax refund?
- Why am I being audited if I do not make taxable sales?
- What is the duration of an audit period?
- What are the areas of examination?
- What if I wish to destroy records?
- What happens during an Audit?
- What records should be available for review?
- What if I have records stored off-site?
- What if a tax liability is uncovered?
- When is the assessment due?
- How do I appeal the Notice of Assessment?
- What happens if I have new information?
- What if it is discovered that I have paid taxes in error?
- Do I have an opportunity to provide feedback?
- Further Information
The Audit Services Section of the Revenue and Taxation Division routinely audits taxpayer records to determine whether provincial taxes have been correctly applied, collected, reported, and paid.
All taxpayers are subject to an audit. This includes businesses located in the province, as well as those outside of the province that conduct business in New Brunswick.
If your business is located outside New Brunswick and you have a branch or a representative in the province, or if you enter the province to conduct business, you are subject to an audit.
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 due to the province have been paid.
Although certain businesses or taxpayers may not be making taxable sales, they are required to pay tax on purchases for their own personal or business use. Taxpayers may also be unaware that they are making taxable sales, and are therefore required to collect tax.
Effective August 1, 2003, the retention period for records is 6 years but an audit usually covers the previous five years. As a result, taxpayers may be assessed for taxes that were not properly paid, collected, or remitted during this five-year period. The only exceptions to the five-year limit are cases of fraud or willful default, where there is no limit on the audit or assessment period.
The principle areas of examination are your sales, tax liability account, and purchases. An audit may cover all or part of these areas. During the audit, the auditor will verify the following:
- For sales to your customers, that tax was applied properly, 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 goods acquired for your own use, that tax was paid on all taxable purchases.
The legislation requires that you obtain written permission from Audit Services before destroying any records relating to the tax statutes administered by the branch. Your request should be made in writing to the Audit Director, Audit Services, Revenue Administration Branch, Revenue and Taxation Division, Department of Finance, PO Box 3000, Fredericton, NB, E3B 5G5. The Audit Director only authorizes disposal of records for the purposes of the provincial tax statutes. You should also ensure that other areas and level of government do not require retention of your records before destroying them.
Initial contact by the Audit Section
If you are selected for 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.
At the conclusion of an audit, you will be provided with the audit working papers. It may be determined that you are properly collecting, remitting, and paying the tax, or that a tax liability exists.
The auditor will ask you to sign an Audit Report form, which states that the audit has been explained to you and that you understand the basis of any tax assessment. Signing the form does not mean that you cannot request an adjustment or appeal the assessment at a later date.
After most audit assessments, the Revenue and Taxation Division sends a letter outlining the areas where the legislation was not correctly applied. The division also recommends that you investigate these areas and implement procedures to prevent them from re-occurring.
If you disagree with the result of the audit, you should provide a letter to the Revenue and Taxation Division outlining the reasons for your objection. The Division will review your objection and provide a written response.
The auditor will generally 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, or any combination);
- 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.
As a full audit may cover five years, you may have some records in storage. Before retrieving your records from storage, consult with the auditor to determine which documents will be required.
If the audit uncovers a tax liability, the auditor will discuss the reasons with you and give you copies of the completed audit working papers. In addition, the auditor will ask you to pay the assessment by providing a cheque payable to the Minister of Finance. If you are unable to pay the assessment at this time, please provide the auditor with a proposed payment plan. (The Collections Section of the Revenue and Taxation Division approves the payment arrangements.)
Assessments are due on the day the Notice of Assessment is received. This notice is issued for all audit assessments even if the payment was provided to the auditor at the conclusion of the audit.
Tax assessments are subject to two levels of appeal. The first appeal, the Notice of Objection, is to the Tax Commissioner. You have thirty days after paying the tax or from the postmarked date on the Notice of Assessment (which ever is sooner) to send an objection. Then, the Tax Commissioner has sixty days to reconsider the assessment. If you are not satisfied with the Tax Commissioner’s decision, you may then file a Notice of Appeal to the Minister of Finance. You have thirty days from the date you were notified of the Tax Commissioner’s decision to appeal to the Minister of Finance.
If you discover new information that may reduce the assessment after the audit is completed, contact the auditor. The division will review the information to determine if an adjustment is warranted.
The audit does not identify or reimburse you for taxes paid in error. However, if the auditor notices instances where tax was incorrectly paid, he or she will inform you. At which point, you are responsible for preparing a refund claim and submitting it to the Department of Finance.
The Audit Section regularly mails a questionnaire to a random selection of taxpayers who have been audited. The purpose is to obtain feedback on the audit and the service provided by the auditor. The responses assist us in determining how we can perform future audits more effectively.
This bulletin contains general information and is provided for convenience and guidance. If interpretation problems occur, please refer to the legislation or contact the Tax Programs Section of the Revenue and Taxation Division.