Surviving a CRA Tax Audit: Do’s and Don’ts for Small Businesses

A CRA audit can disrupt your business, consume your time, and lead to major reassessments if not handled properly. Small businesses—especially sole proprietors, contractors, restaurants, e-commerce sellers, consultants, real estate investors, and gig workers—are among the most frequently audited groups in Canada. The key to surviving an audit is understanding CRA’s expectations, responding strategically, providing the right documents (not too much, not too little), and avoiding common mistakes that escalate reviews into full audits. This guide explains what to do — and what NOT to do — when CRA selects your business for audit.

Why Small Businesses Are Audited Frequently

Small businesses often face audit risk due to:
cash transactions
inconsistent bookkeeping
home-office and vehicle deductions
GST/HST issues
missing receipts
bank deposits not matching income
real estate or rental activity
crypto or digital-income reporting
Because many small businesses manage their own accounting, CRA expects higher error rates and screens small business returns aggressively.

Do’s and Don’ts: Surviving a CRA Small Business Audit

Do #1: Respond Immediately to CRA Letters

Delays make you look uncooperative and increase the likelihood of assumptions against you. Always respond within the deadline.

Don’t #1: Ignore Audit Requests

Ignoring CRA leads to:
arbitrary assessments
frozen bank accounts
garnishments
escalation to aggressive collections

Do #2: Provide Only What CRA Requests

If CRA asks for mileage logs, do not submit your entire bookkeeping file. Targeted responses prevent the audit from expanding.

Don’t #2: Overshare or Send Unnecessary Documents

Extra documents give CRA more to review, increasing the risk of new questions, new issues, or expanded years.

Do #3: Keep Organized, Complete Records

CRA expects:
bank statements
invoices
receipts
contracts
GST/HST filings
payroll records
digital income statements
A clean recordkeeping system strengthens your credibility.

Don’t #3: Submit Estimates or “Recreated” Records

CRA rejects undocumented numbers immediately. Recreated logs or estimates often trigger gross negligence penalties.

Do #4: Let a CPA Communicate With CRA

Professional representation protects you from:
misstatements
incorrect assumptions
scope expansion
overcommitments
CRA communicates differently with professionals and takes cases more seriously.

Don’t #4: Try to “Explain Away” Missing Records Verbally

Verbal explanations without documentation are usually ignored or misinterpreted.

Do #5: Reconcile Bank Deposits to Reported Income

CRA conducts bank deposit analysis. Every deposit must be explainable—loans, transfers, refunds, revenue, shareholder transfers.

Don’t #5: Mix Personal and Business Accounts

Mixed accounts cause CRA to assume unreported income.

Do #6: Maintain Mileage Logs and Home Office Calculations

Vehicle and home office claims are among the most frequently audited areas. Keep:
CRA-compliant travel logs
percentage calculations
receipts for fuel, insurance, repairs

Don’t #6: Claim Personal Expenses as Business Expenses

This leads to reassessment, penalties, and credibility issues with CRA.

Do #7: Keep GST/HST Filings Audit-Ready

CRA checks:
ITC invoices
GST collected on sales
POS reports
platform payouts (Stripe, PayPal, Shopify)

Don’t #7: Claim ITCs Without Valid Invoices

Missing supplier GST numbers or incomplete invoices result in denied ITCs.

Do #8: Prepare for Multi-Year Reviews

If CRA finds issues in one year, it commonly expands the audit to:
three years
six years (GST/HST or rental issues)
ten+ years (foreign assets or misrepresentation)

Don’t #8: Assume CRA Will Only Audit One Year

One red flag usually leads to expanded scrutiny.

Do #9: Organize Digital Income Reports

Gig workers, Amazon sellers, Uber drivers, Etsy stores, Shopify businesses, and influencers must maintain:
payout statements
commission fee records
sales summaries
platform reporting logs
CRA compares these to bank deposits.

Don’t #9: Assume Platform Income Is “Casual” or Unreported

Platforms report directly to CRA under new compliance laws.

Do #10: Keep Evidence of Loans and Transfers

CRA often mistakes personal transfers or joint-account deposits as income. Keep loan agreements or clear documentation.

Don’t #10: Rely on Memory During Audit Questions

If it’s not documented, CRA considers it unreliable.

What Happens If CRA Doesn’t Agree With You

CRA may:
deny expenses
reassess GST/HST
classify income incorrectly
apply penalties
charge daily compounding interest
A proper Notice of Objection must be filed within 90 days if you disagree with the reassessment.

Mackisen Strategy

At Mackisen CPA Montreal, we protect small businesses during CRA audits by handling all communication, organizing complete documentation, preparing reconciliations, challenging CRA assumptions, drafting audit rebuttals, and filing Notices of Objection when necessary. Our structured audit-defense approach minimizes reassessments and prevents penalties.

Real Client Experience

A Montreal contractor avoided a $38,000 reassessment after we corrected CRA’s bank-deposit analysis. A café owner passed a GST/HST audit with zero adjustment thanks to organized ITC documentation. An e-commerce seller overturned CRA’s assumptions using platform payouts and merchant reports. A self-employed consultant reversed denied expenses with complete, audit-ready logs.

Common Questions

Does a CRA audit mean I did something wrong? Not necessarily. Can CRA audit multiple years? Yes. Should I talk to CRA myself? Not recommended. What if I can’t find receipts? Reconstruction is possible, but risky. Can I fight reassessments? Yes—through objections and appeals.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps small businesses survive CRA audits with expert documentation, strategic defense, and complete tax compliance support.