What to Do If the CRA Audits Your Small Business

EverStone CPA
Jun 25
3 min read

If the CRA selects your small business for an audit, the most important steps are to stay calm, respond promptly to all correspondence, gather your supporting records, and engage a qualified accountant as early as possible. An audit is a formal process, not an accusation — and being well-prepared makes the biggest difference in how it unfolds.

A review versus a full audit

A desk review is a limited, document-based check, often by mail. CRA may ask you to confirm a specific deduction. These are common and usually resolved quickly.
A field audit is more comprehensive. An auditor examines your books, records, and bank statements, and may visit your place of business.

The initial letter identifies the auditor, the scope, and what is requested.

What commonly triggers an audit

Deductions that appear unusually high relative to revenue or industry norms
Significant year-over-year fluctuations in income or expenses
Cash-intensive business types (trades, food service, personal services)
Discrepancies between your return and third-party information slips
High vehicle, meal, or home-office claims without adequate logs
Shareholder loans outstanding at year-end
GST filings that do not reconcile with reported income

Being selected does not mean CRA believes you did anything wrong. Many audits result in no changes.

What the CRA typically requests

Bank statements for business accounts
Invoices and receipts supporting expense claims
Contracts or quotes for significant transactions
Mileage or vehicle-use logs
Payroll records and T4 summaries
General ledger and trial balance
Prior-year financial statements
GST working papers and remittance records

Do's and don'ts

Do — Don't
Respond to all correspondence by the stated deadline — Ignore letters or assume the issue resolves itself
Provide only the documents specifically requested — Volunteer extra records beyond what is asked
Keep copies of everything you submit — Send originals without retaining duplicates
Communicate in writing where possible — Make verbal representations without documentation
Engage a CPA to review the request first — Explain complex positions without professional support

Why good records are your strongest defence

CRA requires businesses to retain books and records for at least six years from the end of the relevant tax year (confirm for the current tax year). Organized records mean faster resolution, fewer adjustments, and lower fees — reconcile monthly, file receipts by category, keep a contemporaneous vehicle log, and keep shareholder loan accounts documented.

How a CPA can represent you

Review the audit letter and scope on your behalf
Prepare and organize your documentation
Act as your authorized representative with CRA
Identify defensible positions versus those to concede
File a Notice of Objection if you disagree with proposed adjustments

If the CRA proposes adjustments

At the conclusion, the auditor issues a proposal letter outlining proposed changes. You can respond before a reassessment is issued. If you disagree with a reassessment, you may file a Notice of Objection within 90 days (confirm for the current tax year). This process has strict deadlines — professional guidance is strongly recommended.

Frequently asked questions

How long does a CRA small business audit take?

A desk review may resolve in weeks; a field audit can take several months depending on complexity and the completeness of your records. Responding promptly keeps it moving.

Can I handle a CRA audit on my own?

Legally yes, but it is generally not advisable for a field audit or when significant amounts are at stake. A CPA understands what the auditor is looking for and how to present your records effectively.

What if I genuinely made a mistake on a prior return?

The Voluntary Disclosures Program may allow you to correct prior returns before CRA contacts you — but only when you come forward first. Speak with a CPA before CRA initiates contact.

If you have received a letter from the CRA or want to ensure your records are audit-ready before year-end, EverStone CPA in Abbotsford offers a free 30-minute review. We serve small businesses and incorporated contractors throughout the Fraser Valley. Book at everstonecpa.com.

Written by Sunny Dhillon, CPA · EverStone CPA, Abbotsford · Last updated: June 2026. General information, not advice for your specific situation. For CRA rules, see canada.ca.