Types of CRA Reviews
| Type | Description | Frequency |
|---|---|---|
| Processing review | Quick check during initial assessment | Common |
| Matching review | Comparing your return to T4/T5 slips | Very common |
| Pre-assessment review | Before issuing assessment | Occasional |
| Desk audit | CRA requests documents by mail | Moderate |
| Field audit | In-person at your home/business | Rare |
| Net worth audit | Lifestyle vs reported income | Rare, cash businesses |
Top CRA Audit Triggers
High-Risk Deductions
| Deduction | Why It’s a Trigger |
|---|---|
| Home office expenses | Frequently overclaimed |
| Vehicle expenses | Personal vs business blurred |
| Meal and entertainment | Often exaggerated |
| Travel expenses | Need clear business purpose |
| Cash expenses without receipts | Red flag |
| Charitable donations (large) | Especially if unusual |
Self-Employment and Business
| Factor | Audit Risk |
|---|---|
| Cash-heavy business | High risk |
| Reporting losses year after year | Red flag |
| High expense-to-income ratio | Triggers review |
| Significant revenue fluctuations | Draws attention |
| Large inventory claims | Needs documentation |
| Bartering income | Often unreported |
Employment Deductions
| Claim | Risk Level |
|---|---|
| Home office (employee) | Higher scrutiny post-COVID |
| Union dues | Low (matched by union) |
| Tools deduction | Must match profession |
| Moving expenses | Distance rules apply |
| Employment expenses (T2200) | Need signed form |
What CRA Cross-References
Automatic Matching
| CRA Knows About | Source |
|---|---|
| Employment income | T4 from employer |
| Investment income | T5 from banks |
| RRSP contributions | Receipts from institutions |
| TFSA overcontributions | Financial institutions |
| Home sales | Land registry |
| Rental income | Property records |
| Child care providers | Recipient claims |
Third-Party Information
| Information | How CRA Gets It |
|---|---|
| Large cash transactions | Bank reports ($10,000+) |
| Real estate transactions | Land title registry |
| Vehicle purchases | Registration records |
| International transfers | FINTRAC |
| Cryptocurrency | Exchange reporting |
| Contractor payments | Matching to payer claims |
Red Flags by Situation
For Employees
| Red Flag | Why |
|---|---|
| Claiming expenses without T2200 | Form required |
| Large vehicle claims | Need employer certification |
| Excessive home office | Requires dedicated space |
| Inconsistent with T4 income | CRA notices |
For Self-Employed
| Red Flag | Why |
|---|---|
| Continuous business losses | Should be profitable eventually |
| Personal expenses as business | Common abuse |
| 100% vehicle business use | Unlikely realistic |
| Large cash revenue, low reported | Lifestyle mismatch |
| Missing GST/HST registration | If revenue exceeds $30,000 |
For Investors
| Red Flag | Why |
|---|---|
| Unreported foreign income | Serious offense |
| TFSA overcontribution | Automatic penalty |
| Day trading in TFSA | May be reclassified as business |
| Large capital gains, no reporting | Property sale matching |
| T1135 foreign property not filed | $100,000+ foreign assets |
How CRA Selects Returns
Selection Methods
| Method | Description |
|---|---|
| Random selection | Small % completely random |
| Computer scoring | Returns scored for risk |
| Industry campaigns | Targeting specific sectors |
| Referrals | Tips, other audits |
| Prior audit history | If issues found before |
| Statistical outliers | Claims outside normal range |
Industries Under Scrutiny
| Industry | Why |
|---|---|
| Construction | Cash payments common |
| Restaurants | Cash tips, inventory |
| Real estate | Complex transactions |
| Cannabis | New industry, compliance focus |
| Trucking | High deduction claims |
| Trades | Cash work |
How to Reduce Audit Risk
Good Record-Keeping
| Practice | Benefit |
|---|---|
| Keep all receipts | Prove deductions |
| Log vehicle use | Mileage log |
| Document home office | Separate space, measurements |
| Bank records | Corroborate income/expenses |
| Keep records 6+ years | CRA can go back |
Accurate Reporting
| Best Practice | Why |
|---|---|
| Report all income | CRA cross-references |
| Don’t round aggressively | Exact numbers seem accurate |
| File on time | Late filing increases scrutiny |
| Claim only legitimate deductions | Don’t get greedy |
| Get professional help if complex | Worth the cost |
Specific Tips
| Situation | Action |
|---|---|
| Large charitable donations | Get official receipts |
| Home office | Calculate properly, keep records |
| Vehicle expenses | Detailed mileage log |
| Foreign assets | File T1135 if over $100,000 |
| Rental income | Report all, deduct legitimately |
What Happens During an Audit
Typical Process
| Stage | What Happens |
|---|---|
| 1. Selection | Return flagged for review |
| 2. Notification | Letter from CRA |
| 3. Information request | Specific documents requested |
| 4. Review | CRA examines documents |
| 5. Proposal | CRA proposes changes (if any) |
| 6. Response | You agree or dispute |
| 7. Assessment | Final determination |
| 8. Appeal | If you disagree |
Your Rights
| Right | Details |
|---|---|
| Representation | Accountant or tax lawyer |
| Documentation | CRA must show why |
| Appeal | Formal objection process |
| Fairness | Taxpayer Bill of Rights |
| Privacy | Your information protected |
What to Do If Audited
| Step | Action |
|---|---|
| 1 | Don’t panic |
| 2 | Read the letter carefully |
| 3 | Gather requested documents |
| 4 | Respond by deadline |
| 5 | Consider professional help |
| 6 | Be honest and cooperative |
| 7 | Appeal if you disagree |