. How to Respond to a CRA Audit Letter (with Sample Responses)

Receiving a CRA audit letter is stressful, but how you respond in the first 10 days can determine the entire outcome of the audit. A well-structured, professional response can limit the scope, prevent additional years from being audited, reduce penalties, and protect your rights. A poor or emotional response can trigger expanded reviews, gross negligence penalties, or reassessments based on assumptions. This guide explains how to read CRA audit letters, how to respond properly, what documents to prepare, what mistakes to avoid, and includes sample wording you can adapt to keep the audit under control.

Why CRA Sends Audit Letters

CRA sends audit letters when:
risk indicators appear in your tax return
industry benchmarks don’t match your income
platform or employer data doesn’t match your filing
GST/HST discrepancies exist
bank deposits exceed reported income
self-employed income looks inconsistent
crypto transactions appear unreported
real estate activity requires verification
CRA’s automated system has flagged the file
An audit letter means CRA believes further examination is needed, not that you are guilty of wrongdoing.

How to Read a CRA Audit Letter

Audit letters typically include:
the year(s) being reviewed
the specific items CRA wants to verify
the deadline to respond
a request for records or explanations
the auditor’s contact information
Any misunderstanding at this stage can lead to sending too much information or answering questions incorrectly.

What CRA Usually Requests in Audit Letters

CRA commonly requests:
bank statements
invoices and receipts
contracts
sales summaries
POS reports
rental statements
crypto transaction logs
vehicle mileage logs
home-office calculations
GST/HST ITC documentation
financial statements
loan agreements
These requests depend on your income type.

How to Respond to a CRA Audit Letter: Step-by-Step

Step 1: Stay Calm and Do Not Rush

Panic causes taxpayers to send incomplete, inconsistent, or excessive documents. Respond strategically.

Step 2: Contact a CPA Immediately

A CPA prevents misstatements, organizes documentation, and communicates with CRA professionally.

Step 3: Acknowledge the Letter Promptly

Send a short confirmation to CRA that you received the letter and will prepare documents. This prevents assumptions of non-compliance.

Step 4: Submit Only What CRA Asked For

Never volunteer extra documents unless necessary. Unrequested information often expands the audit.

Step 5: Organize Documents Clearly

Use labeled PDFs, summaries, and reconciliation sheets. Well-organized files increase credibility and reduce audit length.

Step 6: Provide Factual, Neutral Explanations

Avoid emotional language. Provide concise, evidence-based answers.

Step 7: Keep Copies of Everything Submitted

CRA frequently asks for the same items more than once.

Sample Response to a CRA Audit Letter

Basic Acknowledgment Template

Subject: Acknowledgment of CRA Audit Letter – [Tax Year] – [Your Name / Business]
Dear [Auditor Name],
Thank you for your letter dated [date]. I acknowledge receipt and am currently gathering the requested documentation. I will provide the complete package by [deadline] or will contact you if additional time is required.
Sincerely,
[Name]

Sample Explanation Template (For Missing Receipt)

Dear [Auditor Name],
Regarding the requested documentation for [expense], the original receipt was misplaced. Attached is:

1. Proof of payment (bank/credit card statement)

2. Supplier invoice copy (obtained from vendor)

3. Explanation of business purpose
   I trust this will assist in your review.
   Sincerely,
   [Name]

Sample Explanation Template (For Bank Deposit)

Dear [Auditor Name],
Regarding the deposit of $X on [date], this was not business income. It represents a personal transfer/loan repayment/funds moved between accounts. Supporting documentation is attached.
Sincerely,
[Name]

Critical Mistakes to Avoid

sending too much documentation
sending inconsistent records
failing to reconcile bank deposits
admitting wrongdoing unnecessarily
ignoring deadlines
not using a CPA
responding emotionally or defensively
providing estimates instead of receipts
Once CRA sees contradictions, assumptions become harder to challenge.

What Happens After You Respond

The auditor may:
request more documents
propose adjustments
ask follow-up questions
expand the audit to more years
accept your explanations and close the file
A CPA ensures responses are consistent, legally accurate, and strategically protective.

When the Audit Letter Turns Into a Full Audit

common triggers include:
incomplete submissions
significant discrepancies
unreported platform/gig/crypto income
GST/HST errors
incorrect rental or business expenses
CRA may expand from a simple review into a multi-year audit quickly.

If You Disagree With CRA’s Conclusions

file a Notice of Objection (within 90 days)
request auditor notes
prepare additional evidence
dispute assumptions
A reassessment is not final unless unchallenged.

Mackisen Strategy

At Mackisen CPA Montreal, we manage the entire audit-letter response process. We draft professional responses, organize documents, prepare reconciliations, challenge incorrect CRA assumptions, and defend taxpayers from unnecessary adjustments. Our strategic communication prevents scope expansion and protects your tax position.

Real Client Experience

A Montreal consultant prevented an audit expansion by submitting clean, organized documents. A landlord avoided a multi-year rental audit after proving deposits were loan transfers. A restaurant owner reversed a proposed ITC denial with structured receipts and supplier invoices. A crypto investor avoided penalties after we reconstructed ACB and provided a precise explanation to CRA.

Common Questions

Should I respond alone? Not recommended for complex cases. Can CRA audit multiple years? Yes. What if I can’t find all receipts? Reconstruction is possible. What if the auditor is unreasonable? Escalation and objections are available. Do response delays hurt me? Yes—CRA assumes non-compliance.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal provides expert guidance for responding to CRA audit letters, protecting your rights, and preventing escalations through strategic, well-documented submissions.