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What Are Some Common CRA Audit Flags?

March 4, 2014

Tax Question:

What are the common tax audit triggers or risks?


Canada Revenue Agency (CRA) pursues audits of taxpayers based on risk assessment and random audits. CRA audits can be time-consuming and costly. Taxpayers often ask why they were chosen for a particular audit and some feel that they have been targeted.


In a recent article on their website by Stevan Noveselac & John Sorensen of Gowlings Law (, they have prepared a list of Top Ten CRA Audit Flags to be aware of as follows:

  1. Inconsistencies between third-party information and taxpayer’s filing position: CRA’s “matching program” compares information from third parties such as T4 slips from employers and T5 slips from banks and compares it to taxpayer’s filings.
  2. Employer compliance: CRA aggressively pursues a range of issues pertaining to employer compliance, such as timely remittance of source deductions, independent contractors vs. employees, and taxable benefits.
  3. Not complying with CRA requests for information: This is not only damaging to the taxpayer’s position for a year being audited, but it also flags the taxpayer for future audit enquiries. Supplying information to CRA should be carefully managed to ensure CRA requirements without over-disclosing information.
  4. Requests to amend income tax or GST/HST returns: While amendments to returns may be necessary or desirable to correct previously filed returns, they can attract audit scrutiny.
  5. Unusual or notable changes in deductions or credits: CRA compiles information about deductions and credits claimed by taxpayers over multiple years and significant changes may attract CRA enquiries.
  6. Participating in aggressive or high-risk tax strategies: CRA has dedicated audit resources to detecting and reassessing a number of issues such as offshore investment accounts or charity scams.
  7. Discrepancies between tax filing positions and filing positions for similarly situated taxpayers or private corporations: CRA may compare corporate tax returns and the relationship of purchases, sales, and GST/HST remitted to other businesses in the same industry to ensure reasonability.
  8. Reported income low compared to residents in the same neighbourhood: This suggests that an individual may have unreported income, which may trigger an audit. CRA may initiate a “net worth” or arbitrary assessment, whereby various tools are used to allocate income to the taxpayer.
  9. Not using fair market value for residential real estate rentals: Where rental units yield no income or losses, CRA may suspect that property is being rented for less than market-value rent to related persons.
  10. Referrals: CRA may commence an audit based on information obtained during the audit of a third party (such as a supplier or customer) or referral from another CRA department, other government organizations or informants.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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