“We’re Auditing You” – How to Prepare for a CRA Audit – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Receiving a Notice of Audit from the Canada Revenue Agency is one of the most stressful experiences a taxpayer or business owner can face. Whether you are an individual, freelancer, landlord, corporation, or GST/HST registrant, a CRA audit means your tax filings are under scrutiny. CRA may request receipts, bank statements, invoices, contracts, mileage logs, home office calculations, payroll files, and corporate records. Poor preparation can lead to reassessments, penalties, interest, and prolonged audits. Proper preparation can significantly reduce or even eliminate adjustments. This guide explains exactly what to do when CRA notifies you of an audit—and how to protect yourself.

Legal and Regulatory Framework

CRA audit powers come from the Income Tax Act, Excise Tax Act, and Tax Administration Act (Québec). Under these laws, CRA can inspect books and records, request documents and explanations, visit your business premises, issue mandatory “requirements for information,” interview taxpayers and employees, and reassess tax returns within the normal reassessment period. The normal reassessment period is 3 years for individuals and CCPCs and 4 years for large corporations. CRA may go back further if they suspect misrepresentation, negligence, omitted income, or wilful evasion. These rules define the scope of what CRA can do during an audit.

Key Court Decisions

In Redeemer Foundation v. Canada, the court confirmed CRA’s broad right to request documents and conduct audits. In BP Canada Energy v. Canada, CRA was prevented from accessing tax accrual working papers without justification but retains wide audit powers otherwise. In Richardson v. Canada, the court confirmed CRA’s ability to use bank records, employer data, and third-party information to initiate or support audits. In Bisaillon v. Canada, the court allowed CRA to reopen older years in cases of suspected misrepresentation. These rulings reinforce CRA’s extensive audit rights.

Why CRA Targets This Process

CRA audits are triggered by red flags such as high expenses, repeated losses, mismatched T-slips, real estate transactions, cash-only business activity, GST/HST inconsistencies, large refunds, or unexplained deposits. CRA also conducts audits when lifestyle does not match reported income or when third-party information reveals discrepancies. Being selected does not always mean wrongdoing, but CRA expects full cooperation and strong documentation.

How to Prepare for a CRA Audit

1. Read the Audit Letter Carefully

The letter identifies the tax years under review, the taxes involved, the documents required, timelines for response, and the auditor’s contact information. Deadlines are strict and must not be missed.

2. Gather All Requested Documents

CRA typically requests receipts, invoices, bank statements, credit card statements, mileage logs, home office calculations, GST/HST returns, payroll records, contracts, T4s, T4As, RL-1 slips, and corporate records. Keep clean copies of everything you send.

3. Only Provide What CRA Requests

Do not volunteer extra documents, explanations, or years not listed. Extra information invites expanded audit scope.

4. Organize Documents Professionally

Submit documents grouped, labelled, and sorted. Well-organized files reduce suspicion and speed up the audit. Disorganized records lead to more questions, deeper review, and potential disallowances.

5. Avoid Speaking to CRA Directly if Possible

A CPA representative prevents misunderstandings, misinterpretations, or unnecessary disclosures. Everything you say to CRA is recorded and can be used against you.

6. Ensure All Numbers Match Across All Systems

CRA uses automated matching across tax returns, bookkeeping, bank activity, GST/HST filings, payroll data, and financial statements. Any mismatch must be explained and supported.

7. Prepare Explanations Before CRA Asks

Be ready to justify unusual transactions, large deposits, missing receipts, business losses, home office claims, or travel and vehicle expenses. A proactive explanation reduces the risk of assumptions that lead to reassessment.

8. Never Alter Records During an Audit

Altering records is misrepresentation and can trigger penalties or criminal investigation. If a mistake exists, disclose it properly through your representative.

9. Know Your Rights

You have the right to professional representation, reasonable timelines, written requests, fair treatment, and the right to object to any reassessment within the legal deadlines.

10. Expect Follow-Up Requests

CRA audits often occur in multiple phases. Additional requests are normal until the auditor is satisfied that all relevant information has been reviewed.

Mackisen Strategy

At Mackisen CPA Montreal, we take full control of the audit process to protect you. We review the audit letter, gather and index all documents, prepare financial analyses, communicate with CRA on your behalf, address discrepancies before CRA questions them, negotiate outcomes, and minimize or eliminate reassessments. Our proactive and professional approach dramatically reduces stress and protects you from penalties.

Real Client Experience

A consultant audited for travel expenses had no complete mileage log. We reconstructed records using calendar data, client meetings, fuel receipts, and CRA accepted nearly all claims. A real estate investor audited for flipping was protected by documenting long-term investment intention. A corporation with GST/HST inconsistencies avoided reassessment after we reconciled filings. A freelancer flagged for unreported platform income received reduced penalties after we corrected reporting and presented a clean compliance plan.

Common Questions

Does a CRA audit mean I did something wrong? Not necessarily. What if I’m missing receipts? We reconstruct documentation professionally. Can I delay the audit? Yes, with proper written request and justification. Can CRA expand the audit? Yes, if misrepresentation is suspected.

Why Mackisen

With over 35 years of combined CPA experience, Mackisen CPA Montreal prepares, defends, and protects taxpayers during CRA audits. We ensure accuracy, compliance, and powerful representation so you never face CRA alone.