What triggers a CRA audit in Canada?
The Canada Revenue Agency selects files for audit using a mix of automated risk scoring and manual review. Certain patterns reliably raise the odds: claiming large business losses in multiple consecutive years, reporting business income well below the average for your industry, large charitable donations relative to income, home-office or vehicle deductions that seem disproportionate, and significant fluctuations in revenue year over year.
The CRA also runs specific audit programs targeting particular industries, offshore accounts reported on a T1135, and transactions it considers aggressive tax planning. Random selection plays a smaller role but does exist — some files are chosen simply to maintain statistical coverage.
Being audited does not mean CRA suspects fraud. Most audits are correspondence audits that ask you to verify a few items by mail. A field audit, where an auditor visits your home or office, is reserved for more complex cases. If you receive an audit letter, respond promptly and consider speaking with a tax lawyer before providing documents.
Key takeaways
- Risk scoring, industry benchmarks, and offshore reporting flags are common audit triggers.
- Consecutive business losses and unusually high deductions attract scrutiny.
- Most audits are correspondence audits — a request for supporting documents by mail.
- Consult a tax professional before responding to an audit request.