CRA Audit vs Review: What’s the Difference and How to Handle Each – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Many Canadians panic when they receive a letter from the Canada Revenue Agency (CRA). But not all CRA letters mean you are being audited. CRA conducts reviews and audits, and each process is vastly different in scope, seriousness, documentation requirements, and potential tax consequences. Misunderstanding the difference can lead to unnecessary stress or—worse—poor responses that trigger further examination. This guide explains the key differences between a CRA review and a CRA audit, how each process works, and how to respond properly to protect yourself and your business.

Legal and Regulatory Framework

CRA’s authority to conduct reviews and audits arises from the Income Tax Act, Excise Tax Act (GST/HST), and Tax Administration Act (Quebec). Reviews are part of CRA’s automated compliance screening, while audits involve deeper, manual investigation. CRA can request supporting documentation, receipts, contracts, bank statements, business records, GST/HST filings, payroll records, and foreign asset documentation. Records must be kept for at least six years.

Key Court Decisions

In Stemijon Investments v. Canada, the court confirmed CRA’s broad authority to request information. In Guindon v. Canada, courts emphasized the importance of accurate reporting and documentation during CRA compliance checks. In Brooks v. Canada, CRA used indirect verification to reassess taxpayers during a full audit. These decisions highlight CRA’s power and the importance of understanding the level of review you are facing.

What Is a CRA Review?

A review is a preliminary check by CRA to verify specific information on a return. It is not an audit. Reviews are usually triggered by automated systems and include: pre-assessment reviews (before processing your return), post-assessment reviews (after your Notice of Assessment), matching program reviews (matching T-slips), and benefit validation reviews (CCB, GST/HST credit, tuition, disability). CRA typically asks for receipts or documentation for specific claims.

Characteristics of a CRA Review

• Automated or semi-automated

• Narrow in scope

• Focused on specific lines or credits

• Usually involves mail correspondence

• Shorter timelines (30 days)

• Less serious consequences than audits

• Can escalate if poorly handled
  Typical review triggers include: medical expenses, tuition credits, moving expenses, RRSP contributions, childcare expenses, disability credits, home office deductions, rental expenses, and GST credit eligibility.

What Is a CRA Audit?

A CRA audit is an in-depth examination of your entire tax situation. Audits are conducted manually by CRA auditors and may involve: on-site visits, full bookkeeping examination, requests for additional years, GST/HST audits, payroll audits, real estate transaction investigations, and lifestyle reviews. Audits can result in reassessments, penalties, interest, and gross negligence penalties if CRA alleges intentional misreporting.

Characteristics of a CRA Audit

• Manual, detailed investigation

• Broad or full scope

• Multi-year verification

• High documentation burden

• Possible on-site visits

• High risk of reassessment

• High risk of penalties
  Audits may examine: business income, unreported cash, rental income, GST/HST compliance, payroll remittances, crypto trading, investments, shareholder loans, and real estate gains.

Key Differences: Review vs Audit

1. Scope

Review: narrow, specific items
Audit: broad, multiple years, entire tax situation

2. Intensity

Review: basic documentation
Audit: full financial examination

3. Consequences

Review: adjustments or reversals of credits
Audit: penalties, interest, large reassessments

4. Interaction With CRA

Review: mail/email correspondence
Audit: direct contact with auditor, meetings, interviews

5. Escalation Risk

Reviews can escalate into audits if documentation is missing, inconsistent, or concerning.

How to Respond to a CRA Review

• Provide only the documents CRA requests

• Ensure receipts are legible and organized

• Respond by the deadline

• Avoid over-explaining or providing unsolicited information

• Contact a CPA if unsure
  Most reviews close quickly if handled properly.

How to Respond to a CRA Audit

• Engage a CPA immediately

• Allow your representative to communicate with CRA

• Provide complete, accurate, well-organized records

• Do not speak directly to auditors without guidance

• Avoid assumptions or estimates

• Keep a record of every request and response
  Proper representation reduces audit risk significantly.

What Happens If You Ignore CRA Letters?

Ignoring review letters: CRA will deny claims (medical, tuition, home office, childcare, etc.)
Ignoring audit letters: CRA will reassess based on assumptions, impose penalties, and begin collections.
Failure to respond risks larger assessments and more serious consequences.

Preventing Reviews and Audits

File accurately, avoid aggressive claims, maintain receipts, reconcile accounts, report all income (including gig, crypto, and rental), and follow CRA’s rules for expenses such as vehicle and home office. Clean bookkeeping is the best prevention.

Mackisen Strategy

At Mackisen CPA Montreal, we help clients distinguish reviews from audits, respond strategically, prepare documentation packages, defend deductions, correct CRA misunderstandings, and manage all communication on their behalf. We ensure compliance while minimizing reassessment risk.

Real Client Experience

A Montreal family passed a childcare expense review after we provided detailed receipts and contracts. A consultant avoided a full audit when our response to a review corrected CRA’s interpretation. A restaurant facing an audit avoided $78,000 in reassessments after we reconstructed cash records. An investor passed a real estate audit with our documentation and legal arguments.

Common Questions

Is a review the same as an audit? No—reviews are preliminary, audits are full examinations. Can reviews turn into audits? Yes—if handled poorly. Should I hire a CPA for a review? Recommended if documentation is unclear. Can CRA audit multiple years? Yes.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal protects taxpayers during CRA reviews and audits by providing expert representation and strong documentation. We ensure accuracy, compliance, and strategic responses every step of the way.