What Triggers a CRA Audit? Common Red Flags to Avoid

CRA does not audit taxpayers randomly. Every year, CRA selects returns based on risk scores, industry benchmarks, data-matching discrepancies, lifestyle inconsistencies, error patterns, and trends that suggest unreported income or overstated deductions. Understanding what triggers an audit is essential for employees, landlords, investors, self-employed individuals, corporations, newcomers, crypto traders, and digital-platform earners. This guide breaks down CRA’s top audit triggers and explains how to avoid being flagged, how CRA’s risk systems work, and how to protect yourself with proper documentation.

Why CRA Audits Taxpayers

CRA audits when it believes there is a high likelihood of:
underreported income
ineligible deductions
improper GST/HST filings
real estate misclassification
unreported foreign income
incorrect crypto reporting
cash business discrepancies
CRA’s goal is to protect the tax system—not to punish taxpayers. But misunderstanding the rules can lead to unnecessary audits that drain time, money, and emotional energy.

Top CRA Audit Triggers

1. Large or Unusual Deductions

Home-office expenses
vehicle expenses
travel expenses
meals and entertainment
CCA claims
If deductions exceed industry averages, CRA flags the return for review.

2. Cash-Based Businesses

Restaurants
contractors
cleaning services
barbers
nail salons
food trucks
These industries face higher audits due to underreporting risks. CRA routinely performs POS audits, bank-deposit analyses, and markup tests.

3. Real Estate Transactions

CRA aggressively audits:
flips
preconstruction assignments
short ownership periods
Airbnb income
rental expense overstatements
capital vs business income disputes
Real estate is Canada’s #1 audit category.

4. Unreported Slips or Income Mismatches

CRA matches all T-slips electronically. Missing a:
T4, T4A
T5, T3
T5008
foreign slip
crypto/cash payout
results in automatic reassessment and potential audits.

5. Self-Employment Income (T2125)

CRA audits:
underreported revenue
high expenses
vehicle claims without mileage logs
home office abuse
cash jobs
business losses used to offset employment income
Self-employed individuals are among CRA’s highest-risk categories.

6. GST/HST Discrepancies

CRA compares:
GST collected
sales reported
bank deposits
merchant payouts
Unreported GST/HST or overstated ITCs trigger audits.

7. Cryptocurrency Activity

CRA now receives data from:
exchanges
foreign jurisdictions (CRS/FATCA)
blockchain analytics
Common triggers:
unreported staking/mining income
incorrect ACB
NFT trading
unreported foreign exchange accounts

8. Large Refund Claims

Tuition, childcare, medical claims
donation tax credits
refundable credits
RRSP overcontribution fixes
Large or unusual refunds often trigger pre-assessment reviews.

9. Lifestyle vs Income Mismatch

Common in:
luxury real estate purchases
frequent travel
high-value vehicles
CRA compares taxpayer lifestyle to reported income. Unexplained wealth triggers net-worth audits.

10. Foreign Income & Assets

Failure to report:
T1135
foreign rental income
foreign investment accounts
foreign pensions
CRA uses the Common Reporting Standard (CRS) to obtain foreign banking information.

11. Shareholder Loans

Directors withdrawing funds improperly from corporations face audit risk. CRA enforces shareholder loan rules strictly.

12. Payroll Compliance Issues

Late remittances
contractor vs employee disputes
T4/T4A mismatches
Payroll audits escalate quickly and often lead to penalties.

13. Previous Issues or Patterns

A history of:
late filing
past audits
past VDP submissions
repeated income omissions
increases CRA’s likelihood to audit future years.

How CRA Selects Audit Targets

CRA uses:
AI-based risk scoring
industry benchmarking
data matching
cross-border information sharing
merchant processor data (Stripe, PayPal, Square)
POS system audits
“Lead sheets” from public tips
CRA’s systems compare your return to thousands of similar taxpayers.

Areas CRA Audits Most Frequently

real estate
self-employed & gig workers
crypto traders
high-income earners
cash-economy businesses
professional corporations
restaurants & hospitality
foreign-asset owners
These categories face ongoing scrutiny.

How to Avoid CRA Audit Triggers

file on time
report all income (including cash and platform income)
keep receipts for all deductions
maintain mileage logs
use accounting software
keep bank deposits consistent with reported revenue
file T1135 correctly
structure real estate properly
separate business and personal accounts
Most audits happen because taxpayers cannot support their claims.

What to Do If CRA Contacts You

respond immediately
gather documents
avoid giving more than requested
let a CPA handle communication
CRA will expand the audit if information is inconsistent or incomplete. Professional representation prevents costly mistakes.

Mackisen Strategy

At Mackisen CPA Montreal, we help clients avoid audits by structuring returns properly, documenting deductions, aligning bookkeeping with CRA’s risk metrics, correcting mismatches, and preparing proactive compliance packages. When CRA does audit, we manage the entire process—communication, documentation, dispute, objection, and appeal.

Real Client Experience

A Montreal restaurant avoided reassessment after we defended its POS reconciliation. A landlord stopped a net-worth audit by proving rental expenses with complete records. A business owner overturned a GST audit after we reconstructed ITC documentation. A crypto trader avoided penalties after correcting staking and ACB calculations.

Common Questions

Does CRA audit randomly? Rarely. What is the biggest audit trigger? Real estate. Are cash businesses audited more? Yes. Does CRA track crypto? Absolutely. Can audits be prevented? Yes—with proper documentation and planning.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps taxpayers reduce audit risk and defend against CRA scrutiny with professional, evidence-driven strategies.