What to Expect at a CRA Audit Interview or Site Visit in Canada

Hearing that a CRA auditor wants to visit your business is stressful. Knowing how the process generally runs, what the auditor can ask for and where the limits are makes it much easier to prepare calmly.

This article walks through the usual stages of a business audit, the records commonly requested, the auditor's powers and their limits, and practical steps for the visit. Every audit is different, so a lawyer or accountant can confirm how this applies to you.

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

How an audit usually begins

For a business audit, the auditor usually phones first. You can hang up and call back to confirm who is calling, and a confirmation letter follows. The auditor will normally ask for electronic records before meeting you.

In general the stages are contact by mail or phone, an examination of your records on site or at a CRA office, and an outcome. The outcome can be no change, a reassessment owing more tax, or a refund.

What happens at the site visit

An on-site audit takes place at your residence, your place of business or your representative's office, and the auditor presents valid identification on arrival. The auditor may also ask employees who do the accounting entries about how the business operates.

Records commonly requested include ledgers, journals, invoices, receipts, contracts and bank statements. 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.

• Ask to see identification and note the auditor's name and contact details.
• Answer questions about your business accurately, and say so if you need to check something rather than guessing.
• Keep a list of every record you hand over.
• Decide in advance who in your business will deal with the auditor.

The auditor's powers and their limits

Under the Income Tax Act, an authorized person may inspect, audit or examine books, records and property, may enter premises where a business is carried on or records are kept, and may require the owner or person in charge to give all reasonable assistance and answer proper questions.

There is an exception for a home. An auditor may enter a dwelling-house without the occupant's consent only under a warrant, which a judge may issue on the Minister's application on proof that entry is necessary and has been or is likely to be refused.

A written requirement for documents or information must state a reasonable time for compliance, so it has a deadline. If someone does not comply with an access, assistance, information or document requirement, a judge can order compliance on the Minister's application, and refusing the order can be found to be contempt of court. That order is not available for information or documents protected by solicitor-client privilege.

Why the auditor may look beyond your books

Indirect methods are used where records may be unreliable, accounts are mixed, lifestyle does not match reported income, or the business consistently reports income lower than similar businesses in its sector. The net worth method is the CRA's most common indirect method. It compares changes in assets, liabilities and personal spending against reported income, and can include the financial records of a spouse and household members.

Under the Audit Manual, any positive variance in a net worth calculation is treated as unreported income, and non-taxable sources such as gifts or lottery winnings are part of the calculation. Being able to document non-taxable money you received can therefore matter.

Your rights and how long it takes

The Taxpayer Bill of Rights includes courteous and fair treatment, confidentiality of your personal and financial information and the right to a representative of your choice, though you remain legally responsible. It is a set of principles rather than directly enforceable rights.

The CRA gives no fixed audit length. Duration depends on the condition of your records, the scope of the audit, delays from missing records and consultation with other areas within the CRA, and good records and co-operation reduce the time. If requested records are not provided or are hard to find, delays can result.

What to do next

• Gather the records the auditor asked for and confirm they are complete and readable.
• Call back using a CRA number you have verified if you are unsure about the caller.
• Consider having an accountant or lawyer represent you or attend.
• Take notes of every conversation and keep copies of everything you provide.
• Diarize the 30-day window to respond once the written proposal arrives.

After the audit, the CRA's practice is to give you 30 days to agree or disagree with the auditor's written proposal, though this is administrative practice rather than a statutory deadline. Before objecting formally, you can contact the auditor and, if unresolved, the auditor's team leader. If you disagree with a final reassessment, a formal objection is the next step, and a lawyer can help you decide how to proceed.

Frequently asked questions