Tax issues rarely show up at convenient moments, so most people only dig into the rules when something triggers that uneasy feeling that the CRA might take a closer look at their return. It’s a common experience, and it often comes from wanting clarity rather than expecting trouble. When you understand how the CRA audit system works, it becomes easier to stay confident in your record-keeping and financial decisions.
What Can Trigger a CRA Audit?
For the 2023-24 fiscal year, the CRA reportedly conducted nearly 96,000 audits. The CRA relies heavily on data matching. When the information on a return doesn’t line up with what financial institutions, employers, or third parties have already reported, the system flags it. Even small discrepancies can prompt a closer look, especially when they affect income, deductions, or credits.
Claims That Fall Outside Typical Ranges
Returns that include unusually high expenses or deductions compared to others in similar employment or lifestyle circumstances may draw attention. The CRA compares filings across broad categories, so anything that appears out of step with common patterns can lead to follow-up questions.
Incomplete or Missing Information
Leaving out key details, repeated filing mistakes, and unfiled taxes also increase the likelihood of a CRA audit. The CRA expects consistent documentation, and when something appears incomplete, it can signal that further review is needed to verify accuracy.
Other CRA audit triggers can include:
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- Large swings from previous years. Significant changes in income, expenses, or reporting patterns may prompt the CRA to check that everything aligns with supporting records.
- Cash-heavy business activity. Businesses that routinely handle cash can face added scrutiny because the CRA wants to ensure income is being fully reported.
- Industry-specific risk indicators. Certain sectors are known for common reporting issues, so returns from those industries sometimes receive extra attention.
- Home office or business-use-of-home claims. These deductions are legitimate, but the CRA often verifies that the claimed workspace and expenses are calculated correctly.
- Unreported foreign assets or income. Missing details related to offshore holdings or international earnings on a T1135 can immediately raise questions.
In the most recently reported year, the CRA estimated that around 60-64% of income-tax audit reassessments (debts) from fiscal 2016-17 were recovered, and 71% of GST/HST audit reassessments from fiscal 2015-16 were recovered.
CRA Audit Process and Steps
The CRA typically begins an audit with a written notice explaining what they want to review. Sometimes it’s a single item; other times it’s a broader look at a return. At this stage, the CRA outlines the years under review and the documents they expect to see. This early communication helps set expectations, but it’s always a good idea to consult a tax dispute resolution specialist at Faris CPA to give you a clear sense of what information to gather to expedite the audit in your favour and to help you do so.
Document Review and Follow-Up
Once the CRA receives the requested material, auditors compare the details against reported figures. They may ask for additional clarification if something doesn’t align with standard record-keeping practices. This back-and-forth is normal when the taxpayer isn’t represented by a professional, and responding promptly helps keep the process moving.
Meetings or Interviews When Needed
If questions still remain, the auditor may request a phone or virtual meeting. These discussions often focus on day-to-day operations, expense calculations, or how certain figures were determined. At this stage, representation is vital, as many taxpayers end up saying the wrong thing and inviting more scrutiny.
Proposed Adjustments and Finalization
After reviewing all information, the CRA issues a proposal letter outlining any recommended changes. You have the opportunity to respond with additional documents or explanations. Once the CRA reviews that response, they finalize the assessment and issue a notice that reflects the audit outcome.
CRA Audit Time Limits
For most individuals and many small businesses, the CRA can reassess a return for up to three years after issuing the original notice of assessment. This period is often referred to as the normal reassessment window.
Larger corporations that do not qualify as Canadian-controlled private corporations operate under a four-year window, giving the CRA slightly more room to revisit past filings.
How the Clock Starts
The timeline begins on the date printed on the original notice of assessment. From that point forward, the CRA can review the year in question, request documents, or make changes as needed. Once the normal window closes, that tax year becomes statute-barred, meaning the CRA generally cannot reopen it unless specific conditions apply.
Exceptions and Extensions to Audit Periods
If the CRA determines that a return contains a misrepresentation caused by negligence, carelessness, wilful default, or fraud, the usual time limits no longer apply. In these situations, the CRA can audit or reassess a return regardless of how many years have passed.
Waivers
A taxpayer may sign a waiver that allows the CRA to extend the reassessment period for a specific tax year. These waivers are sometimes requested during ongoing audits when additional time is needed to review certain items. Once signed, the CRA can revisit that year until the waiver is formally rescinded.
Court-Related Extensions
If a compliance order or related legal proceeding is underway, the reassessment clock can pause. This prevents the normal time limit from expiring while the matter is still active.
Situations Involving Offshore or Foreign Reporting
Foreign income, offshore assets, and information-sharing programs can lead to longer review windows. When international reporting gaps exist, the CRA can look beyond the standard period to verify completeness and accuracy.
Taxpayer Rights & Your Legal Recourse
Right to Clear Communication
Every taxpayer has the right to understand what the CRA is asking for and why. During an audit, the CRA must explain the information they need, how the review will proceed, and what the potential outcomes may be. If anything in their correspondence feels unclear, taxpayers can request clarification without it counting against them.
Access to Information
Taxpayers can request copies of the auditor’s working papers, notes, and documents that support any proposed adjustments. This acts as a check and allows individuals and businesses to properly evaluate the basis of the CRA’s position.
Fair Treatment and Professional Conduct
The CRA is required to conduct audits respectfully and impartially. If a taxpayer feels the process is not being handled appropriately, concerns can be raised with the auditor’s team leader or through the CRA’s service feedback channels.
Disputing an Audit Result
If you disagree with the CRA’s final assessment, the formal objection process is the next step. Filing a Notice of Objection initiates an independent CRA appeals officer to review the facts and arguments. This stage often resolves disagreements without needing further escalation.
Judicial Review and Court Options
If a dispute remains unresolved, taxpayers can bring their case before the Tax Court of Canada. The court offers different procedures depending on the complexity and dollar amount at stake. While litigation is more involved, it provides a neutral forum to challenge the CRA’s interpretation of the facts or the law.
On a related note, our goal at Faris CPA is to resolve CRA audits immediately by providing all the relevant documentation and submitting packages based on tax laws to support your position and prevent escalation.
Prep & Best CRA Audit Practices
The smoothest audits tend to be the ones where documents are already sorted and easy to access. Setting up a consistent system for receipts, invoices, contracts, and bank statements makes it easier to respond quickly when the CRA asks for supporting material. Even simple habits like grouping items by category or keeping digital copies can make a noticeable difference.
Responding Effectively to CRA Requests
When the CRA reaches out, timely communication helps keep the process on track. Providing the requested documents in the format they prefer and offering brief explanations when something might look unusual can prevent unnecessary back-and-forth. If something is unclear, asking for clarification is always appropriate.
Staying Within the Scope
Audit requests sometimes include multiple items, but each part relates to specific questions the CRA is reviewing. Focusing on the exact documents and information they’ve asked for helps avoid confusion and keeps interactions efficient. Adding unrelated material can complicate the review and expose you to further scrutiny. However, not providing enough information can also complicate an audit.
Record Keeping Requirements
Taxpayers are expected to maintain supporting records for at least six years from the end of the tax year they relate to. This includes both personal and business documentation. The retention clock resets if the CRA opens a review, so records connected to an ongoing audit must be kept even if they are older.
Types of Acceptable Records
The CRA allows both paper and digital records as long as the copies are clear, complete, and accessible. Bank statements, receipts, ledgers, mileage logs, and electronic transaction records all fall within acceptable categories. If digital files are used, they should be stored in a way that preserves their integrity over time.
Why Proper Records Matter
Accurate documentation is the foundation of any audit response. When records clearly support the amounts reported on a return, the review tends to move faster and with fewer questions. Strong record keeping also protects you if older years become relevant due to extended review periods or follow-up inquiries.
Wrapping Up
A CRA audit can feel disruptive, but many people find that once they understand how the process works, their confidence grows. One thing that often surprises taxpayers is how much smoother the experience becomes when communication is steady and expectations are set early. That sense of structure can make even a complex review feel more manageable.
If you’re facing an audit or a dispute with the CRA, Faris CPA is here to help. Our team focuses specifically on audits, voluntary disclosure program applications, and tax disputes, and we’re upfront about whether hiring us will genuinely benefit your situation. Clients appreciate having reliable support they can reach when they need it, even outside regular business hours. Although we’re based in Toronto, we work with individuals and businesses across Canada. Feel free to reach out when you need guidance you can trust.
