A letter from the Canada Revenue Agency requesting a review of your business records is one of the most stressful pieces of correspondence a business owner can receive. It does not mean the CRA believes you have done something wrong. Most CRA audits are routine reviews — the agency selects returns based on statistical models, industry averages, and specific risk criteria. How you respond, however, matters enormously.
Do Not Ignore It
Every CRA audit notice comes with a deadline and a contact name. The CRA expects a response within the timeframe stated in the notice — typically 30 days. Ignoring or delaying a response does not make the audit go away. It signals non-cooperation, which can expand the scope of the review and lead to worse outcomes than the original audit would have produced.
The first thing to do is read the notice carefully and note exactly what is being requested. CRA correspondence is specific: the agency will identify which tax year or years are under review, which line items or claims are being examined, and what documentation it wants to see.
Source: Canada Revenue Agency. What to expect during an audit. canada.ca
Understand What Type of Review You Have Received
Not all CRA correspondence is a formal audit. The CRA uses several types of reviews with different implications. A desk review or matching review is the most common — the CRA has flagged a discrepancy between your return and information it received from third parties (T4s, T5s, T3s) and is asking you to explain or support a specific amount. A pre-assessment review happens before your return is finalized and asks you to verify certain claims. A post-assessment audit is a broader examination of your return after it has been assessed. A field audit is the most comprehensive, involving a CRA auditor reviewing your books and records directly.
Understanding which type of review you are dealing with determines how you should respond and how much documentation you need to prepare.
Gather Your Records Before Responding
The CRA requires you to retain records supporting your tax return for a minimum of six years from the end of the last tax year to which they relate. If the CRA is asking about a specific claim — a vehicle expense, home office deduction, business entertainment, or capital expenditure — you need to produce the original receipts, invoices, and any other documentation that supports the amount claimed.
For business expenses, this means receipts with dates, vendor names, amounts, and a clear business purpose. For vehicle expenses, a mileage log is the standard CRA expectation. For home office expenses, you need documentation of the workspace and calculation of the eligible portion of your home.
Source: Canada Revenue Agency. Record keeping for businesses. canada.ca
Do Not Amend or Delete Records
This should go without saying but warrants explicit mention: do not alter, amend, backdate, or delete any records in response to a CRA audit. Doing so constitutes an offence under the Income Tax Act. The CRA has experience identifying altered documentation, and the consequences of altering records are far more severe than those of the original audit.
Consider Professional Representation
You have the right to be represented by a professional — a CPA or tax lawyer — in all dealings with the CRA. For a simple desk review involving a single T-slip discrepancy, you may be able to respond yourself with proper documentation. For more complex reviews involving multiple years, business records, or significant dollar amounts, professional representation is strongly advisable.
A CPA who knows your business can prepare a clear, organized response that addresses the CRA’s questions directly, provides the right documentation, and presents your position accurately. The CRA is not adversarial by design — it responds well to organized, professional responses that address its questions clearly.
You Have the Right to Dispute
If the CRA proposes an adjustment you believe is incorrect after reviewing your documentation, you have the right to object. A Notice of Objection must be filed within 90 days of the date on the Notice of Reassessment. Filing a Notice of Objection places the disputed amount on hold while the CRA reviews the objection — interest continues to accrue on any amount ultimately determined to be owing, but the collection process is paused.
If the objection is not resolved to your satisfaction, you have the right to appeal to the Tax Court of Canada.
Source: Canada Revenue Agency. Objections, appeals, disputes, and relief. canada.ca
What Triggers a CRA Audit
Understanding what draws CRA attention helps business owners avoid future reviews. Common triggers include:
- Claiming significantly higher or lower expenses than industry norms for your sector
- Large changes in income or expense ratios between years
- Consistent business losses over multiple years
- Home office deductions without corresponding business activity
- Vehicle expenses that appear disproportionate to the business
- Cash-intensive businesses
- Inconsistencies between amounts reported on your return and T-slips the CRA received from third parties
Good record keeping, consistent and reasonable expense claims, and working with a CPA who understands your industry are the most effective preventive measures.
Key Takeaway: A CRA audit is a request for information and documentation — not a guilty verdict. Organized records, a calm professional response, and the right representation are the three things that produce the best outcomes.
Nguyen Scott LLP assists Edmonton area clients with CRA correspondence, audit support, and representation. Contact us at nsllp.ca/contact-us/ or call 780-458-5479.