CRA Audit Proposal Letter: What Happens Next in Canada

A proposal letter from the Canada Revenue Agency (CRA) can be unsettling. It sets out the adjustments the auditor wants to make to your return, and it usually asks you to respond within a short time.

This article explains what the letter is, how much time you generally have, what your options are, and what tends to follow. It is general information, not advice on your file, and the details of your situation matter.

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

Where the proposal letter fits in an audit

An audit usually starts when the auditor contacts you by mail or phone. The auditor then examines your records, either on site or at a CRA office. The outcome is one of three things: no change, a reassessment that means you owe more tax, or a refund.

If the auditor believes changes are needed, the findings are set out in a written proposal, sometimes called a summary of audit findings. It is not yet a reassessment. You can agree or disagree with the proposal.

There is no fixed audit length. How long it takes depends on the condition of your records, the scope of the audit, delays from missing records and whether the auditor needs to consult others within the CRA.

The 30-day response window

After an audit you have 30 days to agree or disagree with the auditor's written proposal. That 30-day period is CRA administrative practice rather than a deadline written into the Income Tax Act. The deadline to object to a notice of assessment is set by the Income Tax Act: for an individual other than a trust, it is the later of one year after the filing-due date and 90 days after the notice was sent, and other taxpayers have 90 days after the notice was sent.

Even so, treat the 30 days seriously. Putting your position in writing, with supporting documents, gives the auditor a clear record of your side. If you need more time, ask the auditor in writing rather than staying silent.

Your options when you receive the letter

• Agree with the proposal. The audit outcome may be a reassessment owing more tax, so you will want to be ready to deal with any balance.
• Disagree in full or in part. Explain which adjustments you dispute and why, and send the records that support you.
• Ask questions. Before objecting formally, you can contact the auditor and, if the matter is not resolved, the auditor's team leader.
• Ask about the amount owing. The auditor can also estimate any amount owing before a notice is issued, which may help limit interest.

Records are often the deciding factor. If requested records are not provided or are hard to find, delays can result. Books and records must generally be kept for a minimum of six years, and computer-based records must be kept in an electronically readable format.

Interest, reassessment and what comes after

Interest on unpaid tax runs at the prescribed rate for as long as the amount is outstanding. For 1 October to 31 December 2026 the prescribed rate on overdue income tax is 7%, and rates are set quarterly. That is one reason some people choose to resolve the audit quickly or ask the auditor about the amount owing.

If you and the CRA do not agree, a notice of reassessment may follow. The Minister is not bound by a return or information supplied by or on behalf of a taxpayer and may assess tax payable even where the information was inaccurate. An assessment is deemed valid and binding despite any error, defect or omission, subject to being varied or vacated on objection or appeal.

If you disagree with the notice, an individual other than a trust must serve a notice of objection by the later of one year after the filing-due date and 90 days after the notice of assessment was sent. For most assessments, the CRA generally may not start court proceedings, certify the debt or take the listed collection steps until 90 days after the notice was sent. If you file an objection, collection of the disputed amount is barred until 90 days after notice of the Minister's confirmation or variation. Payroll source deductions and related amounts are an exception to those restrictions.

Your rights and getting help

The Taxpayer Bill of Rights lists 16 rights, including courteous and fair treatment, confidentiality, a formal review of your file and a representative of your choice. You may choose a person to represent you and to advise you on your tax affairs, but you remain legally responsible.

The Bill of Rights is a set of principles rather than directly enforceable rights, so it is best used as a guide to how you should expect to be treated.

What to do next

• Note any response date given in the letter, and ask the auditor if you are unsure when your 30 days to respond end.
• Read each proposed adjustment and match it to your records.
• Gather invoices, receipts, contracts, bank statements and ledgers that support your position.
• Call the auditor with questions, and keep notes of every call.
• Respond in writing before the date given, agreeing or disagreeing item by item.
• Diarize the objection deadline in case a notice of assessment follows: for an individual other than a trust, it is the later of one year after the filing-due date and 90 days after the notice was sent.
• Consider speaking with a lawyer or accountant before you agree to anything large.

Frequently asked questions