CRA Third-Party / Related-Entity Audit — Montreal CPA Accounting Firm Near You: Control the Network Risk and Protect Your Business

A CRA Third-Party or Related-Entity Audit is one of the most misunderstood and potentially dangerous stages of tax enforcement. When the Canada Revenue Agency (CRA) or Revenu Québec suspects undeclared income, transfer pricing issues, or related-party inconsistencies, they may compel information from banks, business partners, accountants, and even digital platforms like Shopify, PayPal, or Airbnb. Mackisen CPA Montreal — the trusted CPA accounting firm near you — specializes in protecting clients during these network-based audits. Our mission is to ensure that every document, email, and financial record disclosed to the CRA remains compliant, limited to lawful scope, and properly interpreted. This proactive approach minimizes risk across all connected entities while safeguarding the integrity of your business network.

Understanding the Third-Party Audit Process

The CRA conducts Third-Party or Related-Entity audits under its legal authority to request information from anyone who has dealings with a taxpayer. These audits are designed to cross-check data among business partners, family members, suppliers, or corporations that share ownership, banking, or transactions. Common examples include CRA requesting supplier invoices to verify reported expenses, CRA obtaining bank records from financial institutions to trace deposits, CRA demanding platform data from Amazon, Uber, or Airbnb to verify reported self-employment income, CRA reviewing intercompany loans, dividends, or management fees between related corporations, and CRA comparing payroll or GST/QST filings across companies under the same director. In Quebec, Revenu Québec conducts similar related-entity reviews and often shares information with the CRA under joint-audit protocols. This creates double exposure for businesses that are not fully documented or properly represented.

Learning Insight: Third-party audits are not random. They are triggered by algorithmic risk scoring that detects missing links or unusual financial relationships. A CPA accounting firm near you, such as Mackisen, can identify these risk triggers before the CRA does — allowing you to adjust documentation and prevent escalation.

Legal and Regulatory Framework

Law: Income Tax Act (ITA) s.231.2 — authorizes the Minister to require information from any person if it is “reasonably required” for tax administration. The request must specify the taxpayer, timeframe, and purpose.
Jurisprudence: Coopers & Lybrand Ltd. v. R. (SCC, 1979) — confirmed that third-party requests must be specific, relevant, and not constitute a fishing expedition. Barreau du Québec v. Revenu Québec (2019 QCCA) — recognized that professional secrecy and privacy protections apply even in tax investigations.
Learning Insight: CRA authority under s.231.2 is not absolute. It must balance taxpayer privacy, reasonableness, and necessity. An experienced CPA acts as a shield — ensuring that only documents directly tied to the inquiry are disclosed.

Why CRA Uses Third-Party and Related-Entity Audits

The CRA uses these audits to cross-verify data, ensure GST/QST trust compliance, validate payroll consistency, test transfer pricing between related entities, and verify lifestyle consistency for shareholders and professionals. Each purpose targets whether the declared income reflects the real financial activity of the network. CRA algorithms now use AI to detect anomalies across networks. When one related company is audited, the entire group becomes visible. Mackisen CPA Montreal prepares clients with consolidated evidence and reconciled statements, ensuring every related file tells a consistent financial story.

Learning Insight: Proactive coordination between related entities avoids conflicting declarations that can trigger multiple audits.

How Mackisen CPA Accounting Firm Near You Manages These Audits

Legal Risk Assessment: We review CRA’s demand letter to confirm if the request meets ITA s.231.2 standards. Overbroad or unspecified requests can be challenged or narrowed through professional correspondence or judicial review.
Strategic Disclosure Control: Not every document must be sent. We categorize information as mandatory, optional, or protected. This ensures full compliance without unnecessary disclosure.
Cross-Entity Reconciliation: We align intercompany transactions, shareholder advances, dividends, and loans across T2 corporate tax returns, CO-17 Quebec filings, and GST/QST remittances.
Communication With CRA Officers: Our bilingual CPA team manages all correspondence and explanations, using precise legal and accounting terminology to avoid misinterpretation.
Defense Documentation: Mackisen CPA prepares detailed audit binders including ledgers, proof schedules, and legal citations that replicate CRA’s internal audit structure for maximum credibility.

Learning Insight: A Third-Party Audit is not about volume of documents, but the consistency of evidence. A CPA-prepared file builds a clear narrative that satisfies auditors and closes reviews faster.

Common Third-Party Audit Scenarios in Quebec and Canada

Banks may receive disclosure orders under s.231.2 to trace hidden income. CRA may cross-match Uber, PayPal, or Shopify data to identify unreported self-employment income. Intercompany loans may be examined for shareholder benefit risk, and family transactions may raise attribution issues. Mackisen CPA responds by verifying deposits, reconciling business and personal accounts, documenting loan terms, and separating personal expenses from business operations. Supplier verifications are handled by providing invoices, payment proofs, and GST/QST filings aligned with accounting records.

Learning Insight: When CRA contacts your client, supplier, or platform, it is testing the integrity of your network. A CPA accounting firm near you ensures those third-party contacts reinforce compliance rather than create risk.

Consequences of Mishandling a Third-Party Audit

Improper handling of a CRA third-party request can lead to expanded audit scope, frozen refunds, reassessments with penalties under ITA s.163(2), or privacy breaches if unrelated data is disclosed. A single inconsistency can open multiple years of reviews. Mackisen CPA prevents escalation by providing structured, lawful, and complete responses that demonstrate good faith and professionalism.

Learning Insight: CRA auditors evaluate cooperation and documentation quality. Strong, organized responses reduce audit duration and improve credibility.

How to Respond to a CRA Third-Party Request

Never respond directly to CRA or ARQ requests without CPA representation. Always confirm the legal basis of the request and request written clarification of scope and timeframe. Limit disclosures to relevant periods and attach professional summaries explaining each dataset. Keep records of all submissions and maintain clear audit trails. Mackisen CPA’s correspondence letters are structured to satisfy audit objectives while preserving privacy and minimizing exposure.

Learning Insight: A CPA-prepared response letter is both your legal protection and your compliance proof. It demonstrates diligence and awareness of statutory limits.

Why Choose Mackisen CPA Montreal

Mackisen CPA Montreal brings over 35 years of combined audit, tax, and forensic accounting experience. As a full-service CPA accounting firm near you, we represent individuals and corporations in CRA and Revenu Québec audits, third-party data requests, reassessments, and compliance reviews. We create documentation binders that mirror CRA’s internal verification methods, communicate bilingually with auditors, and operate minutes from Montreal and Brossard tax offices for rapid coordination.

Learning Insight: In a third-party audit, time and precision define success. The first two weeks determine whether a file remains administrative or escalates to enforcement. Mackisen CPA ensures immediate, structured response.

Educational Value and Preventive Takeaways

Maintain formal intercompany agreements and annual minutes. Keep separate banking for each related entity. Record shareholder transactions as loan accounts with clear documentation. Archive receipts from e-commerce platforms and match them to deposits. Conduct annual reconciliation between CRA and Revenu Québec filings to detect mismatches early.

Learning Insight: The best audit defense is preventive accuracy. When every entity under your control reports consistent, verifiable numbers, CRA risk algorithms find no red flags.

Mackisen CPA Montreal — your trusted CPA accounting firm near you — specializes in CRA and Revenu Québec audit defense, reassessment representation, and compliance for individuals, professionals, and corporations across Quebec and Canada. We protect your reputation, your records, and your financial integrity.