If you’re a small business owner, the word “audit” can send a chill down your spine. What triggers a CRA audit? Being selected for a Canada Revenue Agency (CRA) audit doesn’t necessarily mean you’ve done something wrong. However, certain behaviours, patterns, and inconsistencies can increase your chances of landing on the CRA’s radar.
Here’s what can trigger an audit—and how to reduce the odds.
Common CRA Audit Triggers
1. Repeated or Large Losses Year After Year
Reporting business losses for multiple years can raise red flags. The CRA may want to ensure your business is truly operating with a profit motive.
2. High Deductions Relative to Income
Large expense claims—especially in categories like meals, entertainment, vehicle use, or home office deductions—can prompt closer scrutiny.
3. Inconsistent Reporting
If your GST/HST filings don’t match your income tax returns, or your T4 and T5 slips don’t align with payroll or dividends claimed, expect the CRA to take a closer look.
4. Industry Comparisons
If your margins, deductions, or income deviate significantly from others in your industry, that could trigger an audit.
5. Past Issues or Repeat Audits
If you’ve been audited before and issues were found, the CRA may flag your file for review again—especially if patterns persist.
How to Lower the Risk of an Audit
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Keep clean, detailed records
Maintain receipts, invoices, and explanations for all transactions—especially cash. -
Stay consistent
Align your income, GST/HST, payroll, and other filings. Inconsistencies are red flags. -
File on time and accurately
Late or error-ridden filings can draw attention. -
Work with a professional
Accountants can help ensure your reporting follows CRA guidelines and spot potential red flags before the CRA does.
While some audits are random, many are preventable. If you’ve been audited more than once, it’s worth reviewing your filing habits and engaging professional help to get ahead of the issues. Reach out to us with questions and learn more about audit insurance here.
