What Triggers a CRA Audit of an Individual Tax Return in Canada?

This answer covers Canadian federal tax law, which applies in every province.

There is no single trigger, but the CRA audits files it identifies as high risk using risk-assessment tools, analytics, leads and third-party data. Indirect methods of checking income are used where records may be unreliable, accounts are mixed, lifestyle does not match reported income, or a business consistently reports less income than similar businesses in its sector.

Real estate is one area of focus. Sales of a principal residence must be reported on your return for 2016 and later years, even if there is no gain, and property flips are generally fully taxable as business income. If you rent out property, unsupported expenses may be disallowed, so keep invoices, receipts and contracts.

The net worth method compares changes in your assets, liabilities and personal spending against reported income, and any positive variance is treated as unreported income. Non-taxable sources such as gifts or lottery winnings are part of that calculation. Books and records must generally be kept for a minimum of six years. Whether your return is likely to draw attention depends on the facts, so a lawyer or accountant can help.