A CRA audit letter means the Canada Revenue Agency has selected one or more of your returns for a closer look. It starts a process with fixed deadlines and record requests, and the person who controls the paper controls most of the outcome. Most audits are chosen through risk assessment, so the letter alone is not a finding that you did something wrong.
When a CRA audit letter arrives, verify that it is genuine, note the years, issues, and response deadline, and preserve your records. Then send a complete, organized response through the CRA's secure channels, with a tax lawyer involved early if the audit touches reorganizations, shareholder transactions, or a business sale. At Beganyi Law, we see audits where the documents were sound but the explanation behind them was missing.
Strong evidence and a clear narrative are what keep a reassessment from following.
If your letter involves a holding company, a recent reorganization, or a business sale, you can call us at +1 647-977-7749 or arrange a confidential consultation. Remote meetings are available anywhere in Ontario.
Key Takeaways
- Confirm the letter's authenticity and deadline before sending anything.
- Organize business and personal records to match each specific request.
- Track objection and appeal deadlines from the date on every notice.
What Should You Do First After Receiving the Letter?
Your first job is to confirm the letter is real, define exactly what it asks for, and protect the deadline. Scammers imitate CRA correspondence. Review letters and audit letters also carry different stakes, and the clock on a records request starts when the letter is issued.
Verify the Sender and Identify the Years, Issues, and Response Deadline
Verify the letter before you share any information. The Canada Revenue Agency does not demand payment by gift card, cryptocurrency, prepaid credit card, or Interac e-transfer. It does not threaten arrest or deportation either. Official CRA websites start with canada.ca or end in cra-arc.gc.ca.
If an auditor calls first, you can end the call and phone back through a number you have checked yourself. You can also wait for the written audit confirmation letter. For review letters, the CRA lists 1-800-959-8281 as a number you can call to confirm a letter's authenticity.
Once you know the letter is genuine, write down four items on one page:
- The tax years or reporting periods under review
- The tax type (income tax, GST/HST, or payroll)
- The specific issues named, such as expenses, shareholder loans, or revenue
- The response date and the auditor's and team leader's contact details
This one-page summary becomes your working file. It also keeps your accountant, your lawyer, and you aligned on scope.
Is It a Review Request, an Audit, or an Assessment?
These three letters differ, and your response should match the type.
Letter type | What it means | Typical response |
|---|---|---|
CRA review letter | Routine check of specific amounts, deductions, or credits | Send the requested receipts or documents |
Tax audit letter | Closer examination of books and records | Organized records package, often a professional response |
Notice of assessment or reassessment | The CRA's formal decision on tax owing | Pay, or file an objection within the deadline |
The CRA reviews about 3 million income tax returns every year, and it describes a review as separate from a tax audit. An audit letter signals a broader examination. A notice of assessment or reassessment is the formal result that starts objection deadlines.
Preserve Records and Request More Time Before the Deadline
Stop any routine deletion of email, accounting backups, or old files covering the years in question. Do not rewrite ledgers or create documents after the fact; an auditor who finds backdated records will doubt everything else you send.
If you need more time, ask before the deadline expires and put the request in writing. Under the CRA's internal standard timelines, an initial request for books and records allows up to 30 days, and a follow-up can add up to 60 more. Extensions are expected for events outside your control, such as illness, a death, a natural disaster, or a change of representative.
Plan around the fact that the follow-up request is the last extension. It warns that the CRA may seek a court compliance order under section 231.7 of the Income Tax Act.
Which Records Will the CRA Examine?
Auditors examine any record that relates to the return under audit, and that reaches well beyond the corporate ledger. Owner bank statements, spousal records, and documents from related companies and trusts all fall within scope, so your preparation should cover the full ownership group.
Match Business and Personal Records to Each Request
The CRA groups the material it examines into a few categories:
- Business records: ledgers, journals, invoices, receipts, contracts, rental records, and bank statements
- Personal records: personal bank accounts, mortgage documents, and credit card statements
- Related-party records: a spouse or common-law partner, family members, corporations, partnerships, or a trust (settlor, beneficiary, and trustee)
- Accountant adjustments: entries made by your bookkeeper or accountant for tax purposes
Build a cross-reference index that lists each numbered item in the auditor's request beside the document that answers it. Respond only to what was asked, and answer every item. Volunteering unrelated files widens the audit, while gaps prompt follow-up queries.
Where business and personal accounts have been used interchangeably, expect the CRA to consider the net worth method. It compares changes in your assets, liabilities, and personal spending against reported income, using sources like vehicle registrations and land titles. Gifts, inheritances, and other non-taxable receipts need documents ready to show their source.
Support Business Expenses and Vehicle Use
Business expenses survive an audit when each one has a receipt and a clear business purpose. A credit card statement shows payment; it does not show what was bought or why.
For vehicles, a contemporaneous vehicle logbook recording date, destination, purpose, and kilometres is the strongest support for the business-use percentage. Logs reconstructed months later are easy to challenge, so if yours is incomplete, gather calendars, client invoices, and fuel records that corroborate specific trips.
Meals, home office costs, and payments to family members draw particular attention. For family wages, keep evidence of the work performed and pay at a rate you can defend.
Reconcile Shareholder Transactions, Reorganizations, and Business Sales
Owner-managed corporations raise issues that a receipt cannot resolve. Auditors trace shareholder loan balances, dividends, management fees, and personal expenses paid by the company.
If the years under review include a Section 85 rollover, an estate freeze, an amalgamation, or a sale, the auditor will compare what the documents say with what happened. Resolutions, share registers, valuation reports, and filed elections need to line up. Where a sale relied on the lifetime capital gains exemption, expect questions about whether the shares qualified, including any purification steps taken beforehand.
A current minute book is often the deciding document in these disputes. Where records are thin, we help clients assemble the corporate history so the legal steps and the tax filings tell the same story.
If you report foreign income or hold foreign property, have your foreign bank statements and any T1135 filings ready. Records held outside Canada are a recognized reason for a longer initial deadline, so raise this with the auditor early.
Submit Documents Securely and Address Missing Records
Auditors cannot accept records by email. Use the CRA's secure online submission service, deliver documents to a tax services office, or send them by mail. When an auditor borrows originals, you receive a detailed receipt, so keep copies of everything you hand over.
Electronic accounting records must be kept in an electronically readable format, generally for at least six years. If a record is missing, request copies from the bank, supplier, or other party that created it. When a replacement cannot be found, the auditor or team leader can work with you on alternative ways to confirm the reported amounts.
How Does the Audit Work, and When Should You Get Advice?
Audits move from a records request through examination and questions to a written summary of findings. The format and your legal obligations shape how you prepare, and certain issues call for a lawyer alongside your accountant.
What Changes Between a Desk Audit, a Field Audit, and a GST/HST Audit?
A field audit takes place at your business, your residence, or your representative's office. The auditor shows identification on arrival, can ask questions on the spot, and may speak with the employees who make your accounting entries. Holding the audit at your accountant's or lawyer's office keeps the conversation focused and your staff out of it.
A desk audit runs from a CRA office, sometimes with an auditor outside your region. Everything happens through correspondence and uploads, so the written explanation accompanying your documents carries the weight that a conversation would carry in person.
A GST/HST audit is now separate. The CRA has discontinued combined audits for smaller businesses, so a business faces either an income tax audit or a GST/HST audit, with possibly a brief compliance review of the other tax. GST/HST refund claims are also reviewed before payment.
Understand Your Rights and Information-Providing Obligations
The Taxpayer Bill of Rights sets out 16 rights, including the right to accurate, courteous service and the right to file a service complaint. It also includes the Commitment to Small Business. You can raise concerns with the auditor at any time and escalate unresolved issues to the team leader.
Your obligations are firm. The Income Tax Act (ITA) requires you to keep adequate books, make relevant records available, and give complete and timely answers. Hiring a professional does not shift that responsibility, and failing to provide required records is an offence. Where cooperation stops, the CRA may make assumptions and assess on the information available.
Documents held by your lawyer in the capacity of legal adviser are treated differently. CRA policy directs officials not to request them from lawyers, which is one reason audit-sensitive legal analysis belongs with legal counsel.
Coordinate Your CPA and Tax Lawyer When Legal Issues Arise
Your CPA is the right lead for reconciling numbers, preparing schedules, and explaining accounting entries. Bring in a tax lawyer when the audit turns on legal interpretation, such as the validity of a reorganization, the characterization of a sale, shareholder benefit questions, or potential penalties.
As a Toronto tax lawyer practice, our integrated tax and legal approach pairs the accountant's figures with the legal record. We review the auditor's questions, draft written positions, and make sure the corporate documents support the filed returns. Ladislav Beganyi holds a Master of Taxation from the University of Waterloo alongside his LL.B.
What Happens After the CRA Reviews Your Response?
Once the records are reviewed, the audit ends in either no change or a written proposal to adjust your return. Each outcome has its own deadline and response options.
Understand a No-Change Outcome or Respond to a Proposal Letter
If the auditor confirms your returns, you receive a completion letter and the file closes. Keep the letter with your records for those years.
A CRA proposal letter sets out the intended adjustments and the reasons for them. You have 30 days to agree or disagree, and an extension of up to 30 more days is possible. This window is your best chance to change the result before a reassessment issues, so respond with specific facts, documents, and legal reasoning for each adjustment you dispute. Contact the team leader if the auditor does not resolve an issue.
Review a Reassessment for Tax, Interest, and Penalties
A notice of reassessment states the tax owing, plus arrears interest and any penalties. Check each adjustment against the proposal letter; differences between the two are worth raising.
Separate the components. Interest runs on the tax owing, while penalties such as gross negligence penalties carry their own legal test that can be contested independently. Before the notice issues, the auditor can give an estimate so you can pay early and limit interest.
Check Objection Deadlines and the Route to a Tax Court Appeal
A notice of objection is the first formal step in any tax objection. Deadlines run from the date on the notice:
- Corporations: 90 days from the notice of reassessment
- Individuals: the later of one year after the filing deadline for that return or 90 days from the notice
- Late objections: an extension application is possible, no later than one year after the original deadline
The objection must explain why you disagree, with all relevant facts and documents. If the CRA confirms the reassessment, you have 90 days to appeal to the Tax Court of Canada. You can also appeal if the CRA has not decided an income tax objection within 90 days, or a GST/HST objection within 180 days. Any issue you waived in writing cannot be appealed.
Separate Payment Obligations from Requests for Taxpayer Relief
Disputing a reassessment does not stop interest. For income tax under objection or appeal, the CRA usually postpones collection, but not for GST/HST or for source deductions employers had to withhold. Paying the disputed amount stops interest, and a successful appeal returns it with interest.
Taxpayer relief is a separate request to cancel or waive penalties and interest because of events beyond your control. As of September 2026, the CRA reported an average processing time of about 16 months. Relief requests do not replace an objection, so file the objection on time first.
Respond with Organized Records and Coordinated Advice
A CRA audit goes best when you confirm the letter, meet or extend each deadline in writing, and answer every request with indexed books and records. Keep business and personal records separated, and anticipate questions about shareholder transactions and past reorganizations.
Two deadlines carry the most risk: the 30-day response to a proposal letter and the objection window after a reassessment. Mark both the day each document arrives.
When the issues are numerical, your CPA leads. When they turn on how a transaction was structured or documented, add a tax lawyer before you submit written positions. Our team works directly with your accountant so the response presents one consistent account of the facts and the law.
Frequently Asked Questions
Does receiving a CRA audit letter mean I did something wrong?
No. The CRA selects files through risk assessment, comparison with similar businesses, and information from other audits. Many audits close with no change.
What are common CRA audit triggers for business owners?
Common CRA audit triggers include income lower than similar businesses, mixing personal and business bank accounts, and lifestyle that appears inconsistent with reported income. Sectors considered high-risk for unreported income also draw attention, as do large GST/HST refund claims.
How long does a CRA audit take?
Timing depends on the state of your records, the audit's scope, and whether the auditor consults CRA specialists. Missing documents cause the longest delays. The CRA commits to contacting you within 30 days of receiving requested information to explain next steps.
Can the CRA ask for my personal or family members’ records?
Yes. Personal records and those of a spouse, family members, related corporations, partnerships, or trusts can be examined when they relate to the return under audit. Under the net worth method, the CRA asks for the spouse's and other contributing household members' financial records.
What happens if I ignore a CRA audit letter?
The CRA can assess based on its own assumptions, seek a court compliance order, apply penalties, or refer the matter for prosecution. Ignoring the letter also forfeits your chance to shape the result before a reassessment issues.
Can I use the Voluntary Disclosures Program after receiving an audit letter?
Generally no, for the matters under audit. The Voluntary Disclosures Program requires applying before an audit or investigation has started on the information being disclosed, including against a related taxpayer.
Unrelated issues outside the audit's scope may still qualify, so get advice before applying.