CRA audit guide
Most CRA contact is a routine processing review, not a field audit. Knowing the audit lifecycle, your rights, the trigger factors specific to your trade, and the appeal mechanics turns a stressful event into a structured process.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact CRA. Read our editorial scope →
1. Six audit types
- Processing review — automated request for receipts post-NOA
- Matching program — slip-data vs return reconciliation
- Pre-assessment review — selected returns held before assessment
- Desk audit — written correspondence on a specific issue
- Field audit — auditor on-site reviewing books and records
- Lifestyle / net worth audit — reconstruction where books are inadequate
2. Taxpayer Bill of Rights
16 rights including the right to be treated professionally, to formal review, and to lodge service complaints. Citing the right and using the formal review mechanisms changes the tone of an audit materially.
3. What triggers audits
- Persistent losses (REOP concerns)
- Large or sudden expense increases
- Cash-intensive industries (restaurants, beauty, trades)
- Industry comparator outliers (CRA uses Statistics Canada benchmarks)
- Slip mismatches (T4, T4A, T5 not matching reported income)
- SR&ED, large CCA, real estate flips, crypto activity
4. Field-audit walkthrough
- Initial contact letter + document request
- Opening meeting — scope, timeline, point-of-contact
- Document examination — request books, bank statements, source documents
- Interim queries and information requests
- Proposal letter — auditor's draft adjustments, 30 days to respond
- Final assessment
5. Preparing documentation
Organize by year, by category, with source documents matched to ledger entries. Auditors interpret disorder as concealment. Provide what is requested — nothing more, nothing less. Route everything through one point-of-contact.
6. Penalties
- Late filing: 5% of balance + 1%/month up to 12 months (10% + 2% for repeat)
- Gross negligence (s. 163(2)): 50% of the understatement
- Repeated failure to report income: 10% federal + 10% provincial
- Instalment interest (prescribed rate + 4%)
7. Notice of Objection — 90 days
File Form T400A within 90 days of the date of assessment. Sole proprietors and individuals have 90 days OR one year from the original filing-due date, whichever is later. Objection routes the file to Appeals Division — independent of audit.
8. Tax Court appeal
Informal procedure: disputes ≤$25,000 federal tax per assessment (no representation required, faster). General procedure: above informal cap, full court rules apply. 90 days from confirmation of the objection.
9. Voluntary Disclosures Program (VDP)
Pre-emptively correcting undisclosed income or non-filing under the VDP (Form RC199) can avoid penalties and prosecution; interest is generally still payable but may be reduced. Application must precede CRA contact on the same matter.
- Conditions: voluntary (before CRA initiates), complete, involves the application of a penalty, and is at least one year past due
- General Program tier: full penalty relief + up to 50–75% interest relief for years before the most recent three
- Limited Program tier: penalty relief but no criminal-prosecution shield, ~25% interest relief
- Best fit: unreported foreign income, missed GST/HST registration with retroactive sales, unfiled T1135, unreported crypto disposals
10. Every type of CRA notice (full pipeline)
| Notice | What it means | First action |
|---|---|---|
| 1. Notice of Assessment (NOA) | CRA's response to your filed return | Verify line-by-line; save 6+ years |
| 2. Notice of Reassessment | CRA has changed a prior assessment — slip matching, audit findings | Read every adjustment; 90-day objection clock starts |
| 3. Pre-Assessment Review | Return held before assessment; CRA wants documents | 30-day response window — send exactly what was asked |
| 4. Post-Assessment Review | NOA already issued; CRA now wants verification | Same pattern; can lead to reassessment if you don't respond |
| 5. Desk Audit | Focused review by mail / phone on specific line items | Route through one point-of-contact; reply in writing |
| 6. Field Audit | On-premises review of full books and records | Engage representation; control scope to issues raised |
| 7. Notice of Objection (T400A) | Your formal dispute filed to Appeals Division | 90 days from assessment; Appeals is independent of audit |
| 8. Tax Court of Canada | Appeal after CRA confirms or modifies on objection | 90 days from confirmation; Informal <$25k, General above |
| 9. Voluntary Disclosure (RC199) | Self-correcting before CRA initiates | File before any CRA contact on the same matter |
11. Filing a Notice of Objection — s.165
- How: Form T400A or a signed letter
- Deadline: the later of 90 days from the date of the notice or one year from the original filing due date (individuals and trusts)
- Late? s.166.1 extension request available within one year after the normal deadline if you can show inability to act earlier and a bona-fide intention to object
- Must contain: SIN/BN, tax year(s), each disputed issue separately, facts and reasons, supporting documents
- File online: CRA My Account → "Register a formal dispute"
- By mail: Appeals Intake Centre, Sudbury Tax Centre
12. Tax Court of Canada
- Appeal window: 90 days from CRA's confirmation, variation, or vacation of the assessment
- Informal Procedure: disputes ≤ $25,000 federal tax or penalties per assessment, ≤ $50,000 loss determinations. No filing fees, self-representation is normal, no costs awarded against you
- General Procedure: above the Informal thresholds. Formal pleadings, discovery, costs follow the cause — legal representation strongly recommended
13. Triage framework
- Identify the notice type (table above)
- Note every deadline — most CRA windows are non-extendable beyond the s.166.1 grace period
- Check whether you agree — pay-then-object is sometimes cheaper than fighting interest
- Decide help level — DIY for processing review, accountant for desk audit, tax counsel for field audit or objection
14. After audit — if penalties remain
If the objection or appeal doesn't fully relieve penalty and interest, you may still request taxpayer relief under ITA s.220(3.1) for extraordinary circumstances, CRA actions, or financial hardship — separate from the audit appeal track.
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