What triggers a CRA audit for a small business?
CRA selects files by comparing you to your industry and to your own history — outlier expenses, repeated losses, HST that doesn’t match income, and messy filings all raise the odds.
CRA does not audit randomly so much as it audits anomalies. Its systems compare your returns against industry benchmarks and your own filing history, and flag what does not fit.
The classic flags
Expense ratios far off your industry’s norm. Repeated business losses year after year. Big swings in vehicle, meals, or home-office claims — the categories owners round up. HST filings that do not reconcile with reported income. Growing shareholder-loan balances. Cash-heavy industries get standing attention.
Behaviour flags
Chronic late filing, frequent amendments, and slips that do not match what recipients reported all mark a file as worth a look. Boring, on-time, internally consistent filings are the camouflage.
If the letter arrives
Most “audits” are actually desk reviews asking for backup on one claim. With current books and documents attached to transactions, the response is an afternoon, not a crisis. Loop in your accountant before replying — scope creep is real.
This is general information, not tax advice for your situation. Book a call and a Canadian accountant will give you the answer for your business.
Common questions
How far back can CRA audit me?
Generally three years from your notice of assessment for corporations like CCPCs, but there is no limit where CRA alleges misrepresentation. Keeping six years of records covers the normal window.
Does claiming a home office or vehicle guarantee an audit?
No — these are legitimate, common claims. Outsized or round-number claims without records are what attract attention. Claim what is real and keep the log.