CRA Audit Triggers in Canada: What You Need to Know

by Melyssa Brunet

The Canada Revenue Agency (CRA) is responsible for ensuring that taxpayers comply with tax laws, and part of that process involves conducting audits. While most Canadians file their taxes correctly, certain factors can trigger a CRA audit. Understanding these triggers can help individuals and businesses avoid unnecessary scrutiny.

Here are the most common CRA audit triggers in Canada.

1. Significant Income Discrepancies

If the income you report on your tax return does not match the information provided by third parties (such as your employer or financial institutions), the CRA may investigate further. This includes underreporting income or making mistakes that result in large variances.

2. Repeated Business Losses

If you are consistently reporting business losses year after year, especially if they offset other taxable income, the CRA may audit you to determine whether your business is a legitimate operation or a hobby being used to reduce taxable income.

3. Large Deductions or Expenses

Claiming unusually high deductions compared to your income level can attract CRA scrutiny. This includes excessive business expenses, home office deductions, or large charitable donations that seem disproportionate to your earnings.

4. Unreported Income

The CRA has various tools and third-party data sources (such as T4s, T5s, and bank statements) to detect unreported income. If there is a discrepancy between what you declare and what others report about your earnings, it could trigger an audit.

Other Issues to Consider

5. Cash-Intensive Businesses

Businesses that operate primarily with cash, such as restaurants, convenience stores, and construction companies, often face higher scrutiny due to the potential for underreported income. The CRA closely monitors these industries for compliance.

6. Unusual or Frequent Large Transactions

Large deposits, international wire transfers, or frequent transactions that seem inconsistent with your reported income can raise red flags. The CRA may investigate to ensure there is no unreported income or tax evasion.

7. Claiming 100% Business Use of a Vehicle

If you claim that your vehicle is used exclusively for business purposes, the CRA may require supporting evidence such as a mileage log. Many taxpayers are audited for inaccurately claiming vehicle expenses.

8. Non-Compliance with GST/HST Filings

Businesses that fail to remit GST/HST properly or have discrepancies between reported sales and tax filings may be subject to an audit. Late or missing GST/HST returns can also trigger a review.

9. Random Selection

Even if your tax filings appear normal, the CRA conducts random audits to ensure overall compliance. While this is less common, being prepared with accurate records is always advisable.

How to Reduce the Risk of a CRA Audit

While being audited by the CRA can be stressful, proper record-keeping and

compliance with tax laws can help you navigate the process smoothly.

  • Accurate Records
    Keep accurate and detailed records of all income, expenses, and deductions.

  • Declare Earnings
    Report all income, including cash payments and foreign earnings.

  • Align Finances
    Ensure consistency between personal and business income levels.

  • Legitimate Deductions
    Avoid aggressive tax deductions that cannot be substantiated.

  • Timely Filing
    File tax returns and GST/HST filings on time to avoid suspicion.


CRA Audits: A Strategic Partner for Business Success

A CRA audit isn’t just about compliance—it can be a valuable tool for strengthening your business. By ensuring accurate financial reporting and adherence to tax regulations, a CRA audit helps identify potential errors, improve record-keeping, and reinforce best practices.


Rather than seeing audits as a burden, businesses can use them as an opportunity to refine financial processes, enhance credibility, and gain insights into areas for improvement. A well-maintained and audit-ready business demonstrates transparency and reliability, building trust with stakeholders and setting the foundation for long-term success.


When managed properly, a CRA audit becomes a perfect partner in keeping your business financially sound and compliant.

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