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Ministry of Finance
Tax Bulletin
ISSUED: June 1997 REVISED: July 2010 Bulletin GEN 009
www.fin.gov.bc.ca/rev.htm
Understanding Your Consumer Tax Audit
Social Service Tax Act, Hotel Room Tax Act, Motor Fuel Tax Act, Tobacco Tax Act,
Carbon Tax Act
Do you need to understand why you are being audited?
Do you know what happens during an audit?
This bulletin provides specific tax information about what to expect during your
consumer tax audit. The Consumer Taxation Audit Branch is committed to the service
standards and code of conduct outlined in the Taxpayer Fairness and Service Code.
Table of Contents
What is an Audit? .............................................................................1
Why am I Being Audited? ..............................................................2
What is the Auditor Looking For?.................................................2
How Far Back Can I be Audited? ..................................................4
What Happens During an Audit? .................................................4
What After the Audit? ....................................................7
What if I Still Have Concerns? ......................................................9
Typical Small Business Audit Process Flowchart ....................10
Audit Period Limitation Waiver Agreement Sample ..............12
What is an Audit?
An audit is a formal examination of financial records of your business to ensure that
you are charging and paying tax that is due, and to identify any areas where you may
be doing this incorrectly.
The revision bar ( ) identifies changes to the previous version of this bulletin dated January 2010.
PO Box 9442 Stn Prov Govt Victoria BC V8W 9V4 Why am I Being Audited?
The British Columbia tax system operates on the principle of voluntary compliance.
Each taxpayer is responsible for correctly paying taxes on their taxable purchases, and
for charging and sending in tax (remitting) on their taxable sales. If some taxpayers do
not meet their obligations, all British Columbians are adversely affected.
We audit to identify and collect unpaid provincial revenue which is used to support
important government programs and services, such as health care, education,
transportation and social services. Audits help ensure that all taxpayers pay their
taxes and promote a level playing field for all British Columbia businesses.
Audits also help you understand how tax applies to your business.
Audit Selection
Any taxpayer, including individuals, manufacturers, wholesalers and retailers – large
or small – could be audited. Taxpayers may be chosen for an audit based on a special
audit project, legislated program, risk‐based selection or a referral from another audit.
Businesses located outside British Columbia that conduct business in the province could
also be audited.
Even if you do not make taxable sales, you may still be required to pay tax on the
equipment, supplies or services you use in your business.
You also may not realize that you make taxable sales and are required to collect tax.
Tax Refunds
Refund claims are reviewed to confirm that you have overpaid tax. You may be
audited as part of the review to ensure that all taxes due to the province have been
paid before the refund claim is processed.
What is the Auditor Looking For?
When an audit is conducted, the auditor is looking for evidence that you:
charged the proper amount of tax on your taxable sales,
kept track of the tax you charged, and sent that money to the government on time,
have documentation to support any tax‐exempt sales made, and
paid or self‐assessed tax as required.
Understanding Your Consumer Tax Audit Page 2 of 13
Audit Authority
The auditor has the authority to enter your business premises during your normal
business hours to inspect, audit or examine financial records of your business in order
to confirm that you have met your tax obligations.
You must allow the auditor access, answer any questions and produce any records the
auditor requests from you.
Records for Inspection
The auditor can inspect any of your records – both paper and electronic format.
Typically, the auditor will review your:
financial statements, such as your income statement and balance sheet, including
any schedules of capital additions or disposals,
records, such as general ledgers, purchase and sales journals, cash receipts and
disbursement journals, and
other documentation, such as sales and purchase invoices, sales and purchase
orders, bank statements, cancelled cheques, deposit slips and cash register tapes.
The auditor will safeguard and handle your records without compromise.
Records Stored Off‐Site
As an audit can go back several years, you may need to retrieve some of your records
from storage. Ask the auditor which records will be needed before retrieval to avoid
lost time and unnecessary expense.
Records for Retention
You must retain your provincial tax‐related records for at least five years. You need
written authorization from us to destroy any tax‐related records that are less than
five years old.
Please note: In some cases, businesses may wish to retain their PST‐related records for
longer periods of time to establish their entitlement to an exemption. For example,
where a corporation purchases tangible personal property from a related corporation,