In a recent article on their website by Stevan Noveselac & John Sorensen of Gowlings Law (www.gowlings.com), 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.