CRA reviews and audits: what actually triggers them, and how to respond

Most owners eventually open a CRA envelope with dread. Usually it is a routine review, not an audit, and whether it takes two weeks or six months depends mostly on your records and response. Here is how the CRA selects small business files, and what to do when yours is chosen.

Reviews vs audits: know which letter you got

CRA compliance has tiers. Pre- and post-assessment reviews are automated, high-volume letters asking you to support a deduction or credit. The matching program compares returns with slips — T4s, T5s, T5018s, proposing adjustments for mismatches. An audit examines books, records and sometimes bank accounts over one or more years. Complete records and consistent filings underpin every response.

What actually flags a small business file

• Slip mismatches. The matching program is arithmetic, not judgment: a T5018 filed by your general contractor that does not appear in your revenue, or a T5 your corporation issued that missed your T1, generates mail almost mechanically.
• GST that does not reconcile to income. Your GST returns declare revenue; your T2 declares revenue. When the two diverge materially without an obvious reason (zero-rated sales, timing), the discrepancy is an easy query.
• Ratios outside your industry’s norms. The CRA benchmarks expense categories against businesses in the same industry and region. A drywall company claiming triple the typical vehicle costs, or margins persistently half the sector’s, sits visibly outside the curve.
• Repeated losses. A business that loses money year after year while the owner keeps living invites the question of whether expenses are personal or the activity is commercial.
• Absolute claims. 100% business-use vehicles with no logbook, home-office claims out of proportion to the home, meals claimed at full cost rather than 50% — categorical claims read as unexamined ones.
• Shareholder loan balances. A persistent debit balance in the shareholder account is a known audit theme, because the one-year rule turns stale balances into income.
• Refund and rebate claims. Large or first-time GST refund claims are routinely verified before payment — fast, document-based, and entirely normal.

None of these is an accusation. They are statistical flags, and a well-kept file turns a flag into a short correspondence.

How to respond when the letter arrives

First, read what is actually being asked. Reviews request specific support for specific lines — answer that, completely and only that. Volunteering unrelated records widens the conversation. Second, respect the deadline. Missing it does not pause anything; the CRA simply adjusts the return against you and moves the argument to objection, which is slower and harder.

Need more time? Ask before the deadline. Third, involve your CPA formally. With authorization (AUT-01 through Represent a Client), the CRA deals with your accountant, and a response built on the legislative test resolves faster than a box of receipts.

The audit posture you build in advance

What shortens a review is built beforehand: bank and credit-card accounts reconciled monthly, a vehicle logbook kept in real time, subcontractor agreements behind every T5018, and six years of records you can retrieve. That is the real case for professional bookkeeping: when the CRA asks, the answer already exists, labelled, in the right period.

The habit that does the most for that posture is reconciling. A reviewer works inward from bank statements and invoices, so books reconciled monthly put you in the position of pointing at a proof rather than reconstructing one.

If it does become an audit

Stay factual and organized, and route communication through one person, ideally your CPA. Provide what is requested on schedule, verify rather than guess, and dispute adjustments with the provision and documents, since the auditor’s report reflects the file. Most audits of well-kept files end with little or no adjustment. The costly ones are reconstructions — years of books rebuilt under deadline — decided by how records were kept.

This article is general information for Canadian business owners and is current as of July 2026. CRA review and audit programs evolve; the flags described are common patterns, not a complete or guaranteed list. It is not tax advice; please speak with a CPA before acting on anything here.

A CRA review is handled entirely by correspondence, so your accountant’s postal code is irrelevant to the outcome. We respond to these for owners across BC, including Vancouver.

An audit can run for months, and the strain lands on the owner. If you would like support while it runs, online counselling from Westpeak Wellness is available across BC.

Two review letters look almost identical but mean different things: a pre-assessment review runs before your notice is issued, while a request for information usually arrives after. Once the assessment does land, reading it line by line tells you exactly what changed.