CRA Audit Letter: What To Do Next

Received a CRA Audit Letter?

Receiving a letter from the Canada Revenue Agency (CRA) announcing an audit can be stressful, but an audit does not automatically mean that additional tax will be assessed.

The most important first steps are to understand what the CRA is reviewing, identify the response deadline, preserve the relevant records, and respond carefully to the information requested.

This guide explains what to do after receiving a CRA audit letter, what the CRA may request, what can happen during the audit, and when legal representation may be helpful.

For broader information about CRA audits and legal representation, visit our CRA audit lawyers page.

Quick Answer: What Should You Do First?

Read the audit letter carefully: identify the tax years, reporting periods, issues, and documents the CRA is reviewing.
Note the response deadline: do not ignore the CRA’s requested timeline.
Preserve and organize your records: gather the documents relevant to the specific requests in the letter.
Avoid guessing or providing unnecessary information: make sure you understand what the CRA is asking before responding.
Consider professional advice: particularly where significant amounts, penalties, multiple years, or complex tax issues are involved.
Keep a complete record: retain copies of the audit letter, documents submitted, correspondence, and proof of delivery.

What Is a CRA Audit?

A CRA audit is a review of a taxpayer’s books, records, tax returns, and supporting documents to determine whether tax obligations have been reported correctly.

Depending on the taxpayer and the issue, an audit may involve:

Personal income tax returns;
Corporate income tax returns;
GST/HST;
Payroll remittances;
Real estate transactions;
Business income and expenses;
Foreign income or assets;
Tax credits or deductions; or
Other reporting and compliance issues.

The CRA may review information already available to it, business and personal records, third-party information, bank records, contracts, receipts, invoices, and other documents relevant to the audit.

For official CRA guidance on the audit process, see What You Should Know About Audits (RC4188).

Why Does the CRA Select Taxpayers for Audit?

The CRA uses a variety of methods to identify files for review.

Selection may be influenced by factors such as:

Risk-assessment systems;
Information from third parties;
Discrepancies between tax filings and other information available to the CRA;
Previous compliance history;
Industry or sector-specific compliance programs;
Related-party transactions;
Unusual income, deductions, credits, or expenses;
Real estate or GST/HST activity; or
Other information suggesting that further review may be appropriate.

Being selected for audit does not mean the CRA has already concluded that the taxpayer reported something incorrectly.

Step 1: Read the CRA Audit Letter Carefully

The first step is to determine exactly what the CRA is asking for.

Review the letter for:

The tax years or reporting periods under review;
The specific issues being examined;
The records or explanations requested;
The name and contact information of the auditor;
The deadline for responding; and
Any instructions for submitting documents.

Do not assume that every document in your possession needs to be sent. The requested information should first be reviewed so that the response addresses the audit appropriately.

Step 2: Gather and Organize the Requested Records

The documents required will depend on the issues under review.

Records may include:

Receipts and invoices;
Bank statements;
Credit-card statements;
Contracts and agreements;
Accounting ledgers and working papers;
Payroll records;
GST/HST returns and supporting schedules;
Mileage or vehicle logs;
Real estate closing documents;
Rental records;
Foreign account or investment records; and
Other documents relevant to the matters identified by the CRA.

Organizing the records by tax year, issue, and CRA request can make the response easier to understand and review.

Step 3: Consider Whether You Need a Tax Lawyer

Not every CRA audit requires legal representation.

Professional legal advice may be particularly useful where:

The potential reassessment is significant;
The CRA is proposing gross-negligence penalties;
The audit involves multiple years;
The CRA is reviewing unreported income;
The matter involves foreign assets or offshore income;
The audit concerns real estate transactions or property flipping;
The CRA is requesting extensive records or explanations;
There is concern about potential criminal exposure; or
The legal characterization of a transaction is disputed.

A tax lawyer can review the audit request, advise on the legal issues, communicate with the CRA where authorized, and help prepare submissions responding to proposed adjustments.

Step 4: Respond to the CRA Carefully and on Time

Your response should address the CRA’s actual requests clearly and accurately.

Depending on the circumstances, a response package may include:

A cover letter identifying the audit and taxpayer;
A numbered response to each CRA request;
Supporting documents organized by issue or year;
Written explanations where necessary; and
Legal or factual submissions concerning disputed issues.

Keep copies of everything provided to the CRA.

If additional time is genuinely required, it may be appropriate to contact the auditor before the deadline and request an extension. Whether additional time is granted depends on the circumstances.

What Happens During a CRA Audit?

During the audit, the CRA may review the documents provided, ask follow-up questions, request additional information, and discuss potential issues with the taxpayer or authorized representative.

The auditor may conclude that:

No changes are required;
The taxpayer is entitled to an adjustment or refund; or
The CRA proposes to reassess one or more amounts.

What Is a CRA Proposal Letter?

If the CRA proposes adjustments after completing its audit work, it will generally issue a proposal letter explaining the proposed changes.

The CRA generally provides approximately 30 days to respond to the proposal.

During this period, the taxpayer may provide additional documents, factual explanations, or legal submissions explaining why the proposed adjustment should not be made.

Where additional time is required, an extension may sometimes be considered depending on the circumstances.

What Happens If the CRA Issues a Reassessment?

If the audit results in changes to the taxpayer’s position, the CRA may issue a Notice of Reassessment.

If you disagree with the reassessment, you may have the right to file a formal Notice of Objection.

The objection deadline depends on the type of taxpayer and assessment.

For many individuals, the deadline is the later of one year after the filing due date for the return or 90 days after the date of the assessment or reassessment.

Corporations generally have 90 days from the date of the notice. Many GST/HST objections also have a 90-day deadline.

For official CRA guidance, see Resolving Your Dispute: Objection Rights Under the Income Tax Act.

Learn more about our CRA tax objection services.

What If You Miss the Objection Deadline?

An extension of time to object may be available in certain circumstances.

Generally, the extension application must be made within one year after the original objection deadline and the applicable statutory requirements must be satisfied.

A missed deadline should therefore be reviewed promptly rather than assumed to be final.

Can the CRA Assess Gross-Negligence Penalties?

In some audits, the CRA may propose a gross-negligence penalty under section 163(2) of the Income Tax Act.

These penalties can be significant and are different from ordinary interest or late-filing penalties.

If the CRA proposes a gross-negligence penalty, the factual and legal basis for the penalty should be reviewed carefully.

In an objection involving a penalty under section 163, the CRA bears the burden of establishing the facts justifying the penalty.

Can an Audit Lead to a Criminal Tax Investigation?

Most CRA audits are administrative and do not become criminal investigations.

However, where information identified during an audit raises concerns about deliberate tax evasion or fraud, the matter may potentially be referred to the CRA’s Criminal Investigations Program.

A criminal investigation is legally different from an ordinary audit and can engage additional constitutional and procedural protections.

Learn more about our CRA criminal tax investigation services.

Can You Use the Voluntary Disclosures Program During an Audit?

Usually not for the same information already under audit.

Under the CRA’s current Voluntary Disclosures Program framework, taxpayers who are already under an audit or investigation concerning the information being disclosed are generally not eligible for VDP relief.

However, the current rules are more flexible than the previous framework. Receiving certain CRA compliance communications does not automatically make a taxpayer ineligible, and some prompted applications may still qualify where no audit or investigation has begun concerning the disclosed issue.

Eligibility therefore depends on what the CRA has already contacted the taxpayer about and what information the taxpayer wishes to disclose.

For official CRA information, see the Voluntary Disclosures Program.

Learn more about our Voluntary Disclosures Program services.

Can You Request Relief From Penalties and Interest?

In appropriate circumstances, the CRA may cancel or waive certain penalties and interest under the taxpayer relief provisions.

Taxpayer relief is discretionary and is separate from challenging whether the underlying assessment itself is correct.

Form RC4288 may be used to request cancellation or waiver of eligible penalties and interest.

You can find the official CRA form here: RC4288 – Taxpayer Relief Request.

Learn more about our CRA penalty and interest relief services.

Can the CRA Collect While an Audit Is Ongoing?

An audit itself does not necessarily mean there is a new amount available for collection.

If the CRA ultimately issues a reassessment creating an outstanding balance, collection rules may become relevant.

The ability of the CRA to collect disputed amounts can depend on the type of tax, the taxpayer, and the stage of the objection or appeal process.

If you are dealing with active CRA collection action, learn more about our CRA collections and tax debt services.

How Our Tax Lawyers Assist With CRA Audit Letters

Review the CRA audit letter and identify the issues under examination;
Advise on the taxpayer’s legal obligations and potential areas of exposure;
Review the documents requested by the CRA;
Prepare organized written responses and supporting submissions;
Communicate with the CRA as the taxpayer’s authorized representative;
Respond to proposed adjustments and penalty recommendations;
Review a resulting reassessment and preserve objection rights; and
Coordinate related matters involving collections, taxpayer relief, or litigation where necessary.

Frequently Asked Questions About CRA Audit Letters

How long does a CRA audit take?

There is no single fixed duration. The length of an audit depends on the issues under review, the number of tax years or reporting periods involved, the volume of records, the complexity of the taxpayer’s affairs, and how much follow-up information is required.

Can the CRA audit more than one year?

Yes. A CRA audit can involve multiple taxation years or reporting periods.

The CRA’s ability to reassess a particular year is subject to the applicable reassessment rules. In some circumstances, a reassessment can be issued beyond the normal reassessment period, including where the statutory requirements concerning misrepresentation attributable to neglect, carelessness, wilful default, or fraud are satisfied.

What if I do not have every receipt?

Missing documentation does not automatically determine the outcome, but deductions and reported amounts generally need appropriate support.

Depending on the issue, alternative evidence may include bank statements, credit-card records, contracts, invoices, third-party records, correspondence, or other reliable documentation.

Will a CRA audit automatically mean I owe more tax?

No. Some audits conclude with no changes. Others may result in a refund or adjustment in the taxpayer’s favour, while some result in additional tax, penalties, or interest.

Should I send the CRA everything I have?

You should respond fully to lawful CRA requests, but the response should be organized and relevant to what the CRA is actually examining. If the request is broad, unclear, or involves potentially sensitive legal issues, professional advice may be appropriate before responding.

Speak With a Tax Lawyer About a CRA Audit Letter

If you have received a CRA audit letter, KR Law Firm can review the request, explain the issues being examined, and advise on the appropriate response.

Where necessary, our tax lawyers can communicate with the CRA, prepare submissions, respond to proposed adjustments, and represent you if the audit results in a reassessment or further dispute.

Contact KR Law Firm to Book a Free Consultation with one of our tax lawyers.