CRA Audit Letter: What To Do Next (Step-By-Step Guide)

Receiving a letter from the Canada Revenue Agency (CRA) announcing a tax audit can be stressful. The good news: with the right steps and professional guidance, you can protect your rights, reduce risk, and keep the process under control. In this guide, we explain why audits happen, what to do immediately, what to avoid, and how our tax lawyers at KR Law Firm can help.

What Is a CRA Audit?

A CRA audit is a review of your tax filings and supporting records to confirm you have accurately reported income, deductions, credits, and collected/remitted amounts. Audits may involve personal (T1) or corporate (T2) returns, GST/HST, and payroll (CPP, EI, income tax withholdings). The CRA selects files based on risk assessment, data-matching, random selection, or tips. See CRA’s overview: RC4188 – What you should know about audits.

Common CRA Audit Triggers

• Large or unusual expense claims (vehicle, meals/entertainment, home office, travel).
• Mismatches between reported income and T-slips (T4, T5, T3, etc.).
• Recurring business losses or results outside industry norms.
• GST/HST issues such as large refunds, non-filing, or input tax credit patterns.
• Cash-intensive sectors (construction, restaurants, contractors, retail, digital services).
• Random selection or data-driven flags from CRA analytics.

Consequences of Doing Nothing

• Reassessment without your input: CRA may disallow expenses or add income and issue a Notice of Reassessment.
• Penalties and interest: including gross negligence penalties under the Income Tax Act s.163(2) (which can be very significant) and daily-compounded interest.
• Collections action: wage garnishment, bank freezes, or liens. See CRA guidance on garnishing income and accounts and liens/seizures.

How To Respond to a CRA Audit Letter (Step-By-Step)

1) Read the Letter and Mark Deadlines

Identify the years under review, the issues or items being examined, and the deadline. Missing timelines can escalate matters. Keep the original letter and envelope.

2) Collect and Organize Your Records

• Receipts, invoices, contracts, mileage logs, bank/credit card statements.
• GST/HST returns and working papers; payroll registers and remittance summaries.
• Organize by year and category; prepare a simple index (table of contents) for clarity.

3) Get Professional Representation

A tax lawyer can communicate with CRA on your behalf, reduce risk of over-disclosure, frame issues correctly, and protect privilege. Early strategy often improves outcomes.

4) Respond in Writing (Clearly and Completely)

• Prepare a cover letter that lists each requested item and your response.
• Submit via CRA’s online services (My Account, My Business Account, or Represent a Client) or send by registered mail. Keep copies.
• Respond on time. If you need more time, request an extension before the deadline.

5) Understand the Possible Outcomes

• No change: CRA accepts your filings and closes the audit.
• Proposal/adjustment letter: CRA outlines its proposed changes; you can respond with clarifications or additional documents (typically ~30 days).
• Notice of Reassessment: if you disagree, you have 90 days to file a Notice of Objection. You can file online or by mailing Form T400A – Notice of Objection (Income Tax Act). See CRA’s guide P148 – Resolving your dispute and Resolving disputes (corporations).

If the Audit Uncovers Errors or Omissions

• Voluntary Disclosures Program (VDP): if you need to correct past filings before CRA has contacted you about those specific issues, consider the VDP. See CRA’s VDP overview and application RC199; you can apply online via CRA sign-in services or by mail/fax (how to apply).
• Taxpayer Relief (Penalties/Interest): in appropriate cases, you may request relief from penalties and interest using RC4288 – Request for Taxpayer Relief.

How KR Law Firm Can Help

• Review the audit letter, explain your rights and obligations in plain language.
• Prepare a complete response package with clear indexing and supporting evidence.
• Handle all CRA communications and negotiate where appropriate.
• File Notices of Objection, pursue Judicial Review or Tax Court appeals when needed.
• Advise on Collections (garnishments, bank freezes, liens) and seek Taxpayer Relief where justified.

If you’ve received a CRA audit letter, contact us today for a FREE confidential consultation.

FAQs

How long does a CRA audit take?

It depends on scope and responsiveness. Simple desk audits can conclude in weeks; complex field audits may take several months. See CRA’s general overview: RC4188.

Can the CRA audit multiple years?

Yes. CRA commonly reviews the last 3–4 years, but may go further back if it suspects misrepresentation or fraud. Keep records for at least the statutory retention period applicable to you.

What if I don’t have every receipt?

Explain what’s missing and provide alternative support (bank/credit statements, contracts, third-party confirmations). Organization and clarity matter.

Will an audit automatically mean I owe more tax?

Not necessarily. Some audits end with no changes. If CRA proposes adjustments you disagree with, you can respond, and if reassessed, you can file a Notice of Objection (Form T400A or online) within 90 days.

Call to Action

Don’t handle a CRA audit alone. The tax lawyers at KR Law Firm represent clients nationwide. Book a FREE consultation with one of our tax lawyers to protect your rights, reduce penalties, and resolve your audit efficiently.