The CRA Has Picked You for a Tax Audit—Now What?

You've just opened your mailbox and there it is: an audit notice from the Canada Revenue Agency (CRA). “Why me?” you might be thinking. “Am I in trouble?”

The word “audit” often sparks fears that you've done something wrong with your taxes and that penalties are on the way. The reality is usually far less dramatic, and many cases are resolved without any major consequences—if any at all. The experience may seem less intimidating when you understand what triggers an audit, how an audit works, and what protections apply to taxpayers. Here's what you need to know.

What is an audit?

An audit means the CRA has decided to examine your financial records to ensure you're meeting your tax obligations. It wants to confirm that you've followed the rules, reported all your income, and claimed only the deductions and credits that apply to your situation.

If you've received notice from the CRA that you're being audited, you're not alone. The agency conducted close to 69,000 audits for the 2023–24 fiscal year, up from 62,660 the year before. The 2024 federal budget proposed an enhancement of the CRA's audit powers, so this number is likely to rise further in the coming years.

It's worth noting that the CRA will also conduct reviews, which are different from audits. Typically, reviews are nothing more than a routine check to ensure the information you included on your return is accurate. The CRA conducts about 3 million such checks every year. If you're selected for a review, you'll get a notification by email or mail, with a copy sent to the online mailbox in your CRA My Account for good measure.

How does the CRA choose its tax audits?

The CRA uses risk-assessment systems to flag certain returns for auditing. These systems search for suspicious patterns, such as deductions that consume an unusually large portion of your income, particularly medical expenses or vehicle claims. The agency also cross-checks what you've reported with third-party documents: if the income reported on your return doesn't match what appears on your T4, the CRA may want to investigate. Even how you record figures matters. Rounding every number to the nearest dollar, for example, might suggest you're estimating rather than tracking actual amounts. (Learn more about potential CRA audit triggers.)

The CRA also watches specific industries more closely than others. Cash-dominant sectors such as restaurants, construction, and salons face heightened scrutiny because physical currency is more difficult to track than digital payments. If you earn income through tips or gratuities, for example, or if your business operates primarily in cash, your tax return may receive more attention, as will filings that deviate from industry benchmarks.

“These systems look for statistical outliers,” says Shilpa Banda, a tax expert at TurboTax Canada. “Returns showing unusual patterns compared to similar taxpayers may get pulled for the CRA to take a closer look.”

If you've been selected for an audit, here's what comes next.

What does a CRA audit involve?

The CRA will contact you by phone or mail (or both) to notify you of an audit. If you receive a call, make sure it's legitimate before sharing any information, as CRA scams are very common. Hang up and phone the CRA using the number listed on its official website.

Once contact is established, the auditor will schedule a meeting with you. Depending on what's being reviewed, the audit can take place at various locations, including a CRA office, your home, or your business. The auditor will explain what documents you'll need to produce and what period of time they're examining.

During the audit, the CRA will review records related to the flagged items, such as receipts for claimed deductions, bank statements, invoices, mileage logs, and any other documentation that supports your filing. Co-operation is very important here. Responding promptly to requests and providing clear documentation will help the audit move along.

Audits typically end with one of three outcomes: Your assessment remains unchanged; a reassessment increases the tax you owe; or a reassessment reduces your tax liability, resulting in a refund.

How to prepare for an audit

Organization is your best strategy. The more prepared you are, the smoother the process will be. Start by gathering all documents related to the tax year or years under review. Remember, if you claimed or reported something, you must be able to back it up with supporting documentation. This might include everything from bank statements and tax slips to invoices and expense logs. Try to sort everything chronologically and by category so you can quickly locate anything the auditor requests. If you're disorganized or fail to produce certain records, it will only create delays or raise more questions.

What are your taxpayer rights?

Canada's Taxpayer Bill of Rights provides formal protections when dealing with the CRA, including specific rights that apply during audits. For example, the CRA must serve you in your preferred official language, treat you professionally, and provide complete, accurate, and clear information about your tax affairs.

Your information stays confidential. If you believe the audit process was mishandled, or if you disagree with the outcome, you can file a complaint or request a review. You're also entitled to choose someone to represent you and discuss your situation with the CRA.

Stay calm and complete the audit

Most tax audits are fairly straightforward and don't take too long to settle. You can keep things moving by getting your documents in order, responding promptly to requests, and asking for help when you need it.

Need support? TurboTax experts have your back. If you filed your tax return with TurboTax Expert Full Service, you have access to audit support at no additional cost for up to 3 years after filing. If you filed with TurboTax Expert Assist, you can add audit support for a fee. Visit TurboTax's website to explore the options.

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