Why Sole Proprietors Get Audited 2025 — Avoid CRA Red Flags, Protect Your Income, and Stay Audit-Proo

Being self-employed gives you freedom—but it also puts a CRA spotlight on your tax return. In 2025, sole proprietors, freelancers, and independent contractors are among the most audited taxpayers in Canada. CRA’s AI-driven audit systems automatically compare your reported income and expenses to national industry benchmarks. If your deductions, lifestyle, or revenue patterns don’t match, you can be flagged for a full audit—often before you even realize it.

The problem? Many sole proprietors make innocent mistakes—claiming personal expenses, underreporting cash sales, or lacking proper receipts—that trigger CRA suspicion. Once audited, your business income, personal finances, and even family assets can be examined line-by-line. But with strategic planning, accurate bookkeeping, and professional guidance, you can stay fully compliant and completely protected.

At Mackisen CPA Auditors Montreal, we help sole proprietors across Quebec and Canada prepare bulletproof tax filings that withstand CRA scrutiny. Our CPA auditors analyze your risk factors, correct weaknesses before CRA finds them, and defend your file with professionalism if an audit begins.

Because when CRA audits your business—you need more than numbers, you need defense.

Legal and Regulatory Framework

Income Tax Act (Canada)
Section 9(1): Defines “business income” as taxable and subject to full disclosure.
Section 18(1): Restricts deductions to reasonable expenses incurred to earn income.
Section 67: Allows CRA to disallow any expense deemed unreasonable or personal in nature.
Section 230: Requires all self-employed individuals to keep detailed records for six years.

Tax Administration Act (Quebec)
Mandates similar documentation and provides Revenu Québec authority to reassess and penalize for missing or incomplete business records.

Mackisen ensures your self-employment records meet every legal requirement—so when CRA reviews your books, they find only compliance.

Key Court Decisions

Venne v. The Queen (1984): Inadequate records justify CRA reassessment based on estimates.
Guindon v. Canada (2015): Gross negligence penalties apply even for careless recordkeeping or false statements.
Leblanc v. Canada (2019): Sole proprietors must separate personal and business expenses or risk losing all related deductions.

These rulings show one truth—CRA doesn’t need proof of fraud; carelessness is enough to trigger penalties.

Why Sole Proprietors Are CRA’s Top Audit Target

In 2025, CRA’s digital audit algorithms focus heavily on small business and self-employed taxpayers because they often operate outside traditional payroll and corporate oversight. Red flags include:

• Unusual expense claims: High meals, vehicle, or home office deductions.

• Inconsistent income reporting: Large year-over-year fluctuations or cash-heavy businesses.

• Missing HST/QST registration: Businesses earning over $30,000 not charging tax.

• Frequent business losses: Especially when offsetting other household income.

• Mixing personal and business finances: CRA interprets this as poor recordkeeping.

Once flagged, CRA can audit up to four previous tax years, adding interest and penalties to any reassessed income.

Mackisen’s Self-Employed Audit Prevention and Protection Strategy

1. Pre-Audit Risk Review: Analyze your returns for CRA red flags before submission.

2. Expense Validation: Review and document every deduction—vehicle, meals, office, and advertising—with receipts and logbooks.

3. Income Verification: Ensure all invoices, e-transfers, and deposits reconcile with your declared revenue.

4. Tax Compliance Alignment: Verify GST/HST and QST registration and remittance compliance.

5. Audit Representation: If CRA initiates contact, Mackisen manages all communication and defends your position from start to finish.

Our proactive approach keeps you audit-ready, compliant, and confident year-round.

Real Client Experience

A Montreal freelance consultant was flagged for excessive vehicle deductions. Mackisen reconstructed mileage logs and client records, defended her claim, and closed the CRA audit with no balance owing.
A home-based entrepreneur was audited after reporting losses for three consecutive years. Mackisen proved the business was legitimate, filed supporting evidence, and prevented CRA from reclassifying it as a hobby.

Common Questions

How far back can CRA audit me? Normally up to three years, but up to ten if CRA suspects negligence or misrepresentation.
What records should I keep? All receipts, invoices, mileage logs, bank statements, and client records for six years.
What if CRA thinks my business isn’t real? Mackisen builds an evidence file showing profit intent, client activity, and commercial legitimacy.
Can I claim home office and vehicle expenses safely? Yes—but only with documented evidence and correct calculations. Mackisen prepares compliant claim schedules.

Why Mackisen

At Mackisen CPA Auditors Montreal, we understand that most sole proprietors aren’t trying to cheat the system—they’re trying to survive and grow. We protect you from CRA overreach by ensuring your filings are accurate, defensible, and audit-proof.

Our experts combine deep tax knowledge with real-world business experience to keep you compliant and secure. We don’t just prepare returns—we protect livelihoods.

Call Mackisen CPA Auditors Montreal today for your 2025 Sole Proprietor Audit Risk Assessment. The first consultation is free, and your protection starts immediately.