Top 10 CRA Audit Triggers – A Complete Guide by a Montreal CPA Firm Near You

Introduction

CRA audits do not happen randomly. While some audits are selected for statistical sampling, most are triggered by specific red flags in your tax return, bank activity, GST/HST filings, payroll records, or third-party data. CRA now uses advanced analytics to compare your income, expenses, lifestyle, real estate transactions, and online activity against national databases. If something looks inconsistent, CRA opens a review or full audit. Understanding these audit triggers is essential for preventing reassessments, penalties, and unnecessary stress.

Legal and Regulatory Framework

CRA’s audit authority is derived from the Income Tax Act, Excise Tax Act, and Tax Administration Act (Québec). Under sections 231.1 and 231.2 of the ITA, CRA can inspect records, demand information, review third-party data, and reassess tax returns. CRA may audit any year within the normal reassessment period (3 years for individuals and CCPCs), and older years if misrepresentation, omission, or negligence is suspected. CRA receives information from employers, banks, brokers, payment processors, provincial agencies, and foreign tax authorities, creating a powerful audit framework.

Key Court Decisions

In Redeemer Foundation v. Canada, the court upheld CRA’s broad right to request information. In BP Canada Energy v. Canada, CRA’s access to tax working papers was limited, but their general audit powers remained intact. In Richardson v. Canada, CRA’s use of third-party banking and employment data was approved. In Bisaillon v. Canada, CRA was permitted to go back beyond the normal reassessment period due to misrepresentation. These decisions confirm CRA’s strong audit authority.

Why CRA Targets These Issues

CRA audit triggers often indicate unreported income, inflated deductions, bookkeeping errors, aggressive tax strategies, GST/HST inconsistencies, payroll noncompliance, real estate flipping, offshore income, or mismatched information from third parties. CRA monitors industries, income patterns, and risk scores using national analytics to detect irregularities.

1. Unusually High Expenses Relative to Income

If business expenses appear too high compared to revenue, CRA suspects personal expenses disguised as business write-offs or improperly documented deductions. Self-employed workers, contractors, and consultants are most commonly flagged.

2. Repeated Business Losses

Ongoing business losses—especially from a side business—trigger CRA to determine whether the activity is a hobby. CRA uses court-tested “commercial activity” tests to deny losses lacking reasonable expectation of profit.

3. T-Slip Mismatches

CRA automatically audits when income reported does not match T4s, T5s, T3s, T4As, T5008s, platform income statements, or third-party banking information. Even small discrepancies trigger reviews.

4. Large Charitable Donations

CRA frequently audits large donations due to historical donation-scheme abuses. Claims must be supported by official receipts and proof of payment. Unusually high donations relative to income are always questioned.

5. Cash-Based Business Activity

Restaurants, bars, salons, convenience stores, contractors, and other cash businesses face heightened audit scrutiny. CRA compares reported income to POS data, bank deposits, and industry averages to detect unreported cash.

6. Real Estate Transactions

CRA aggressively audits flipping, assignment sales, pre-construction deals, short-term rentals, principal residence claims, and renovations. Frequent real estate activity is often reclassified as business income.

7. Home Office, Vehicle, Travel, and Meals Claims

High deductions in these categories trigger CRA reviews. Vehicle deductions without mileage logs, home office claims without square-footage calculations, or travel claims without receipts are high-risk.

8. GST/HST Inconsistencies

CRA compares GST/HST returns with income tax returns, bank deposits, T-slips, and industry norms. If reported revenue differs across filings, CRA opens an audit.

9. Sudden Income or Expense Changes

Large swings in revenue, profit, or deductions compared to previous years trigger audits because they may indicate errors or aggressive tax strategies.

10. Offshore, Crypto, and Online Platform Income

CRA receives data from cryptocurrency exchanges, foreign tax agencies, PayPal, Stripe, Amazon, Uber, Airbnb, Etsy, and other platforms. Unreported or mismatched digital income is a top audit trigger.

Mackisen Strategy

At Mackisen CPA Montreal, we reduce audit risk by reviewing tax filings for red flags, verifying GST/HST consistency, documenting home office and vehicle claims, ensuring accurate bookkeeping, correcting past issues, and preparing clients proactively for CRA inquiries. Our audit-prevention approach protects you long before CRA intervenes.

Real Client Experience

A consultant flagged for high vehicle expenses was cleared after we prepared complete mileage documentation. A real estate investor suspected of flipping avoided reassessment after we demonstrated long-term investment intent. A business with charitable donation discrepancies passed review after we provided proof of payment and valuation support.

Common Questions

Does CRA target small businesses? Yes—small businesses are the most audited group. Does a refund increase audit risk? Large refunds do. Can CRA see my bank accounts? CRA can request bank records during an audit. Does having a CPA reduce audit risk? Yes—CRA audits fewer accountant-prepared returns.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps individuals and businesses avoid CRA red flags through accurate filings, strong documentation, and proactive tax planning. We provide complete audit protection, from prevention to representation.