Most letters from CRA are not audits. About nine in ten of the ones I’ve handled for clients over the years were reviews, and a review is one question about one thing on one year’s return. You answer it, you send the receipts, it closes. The fear is almost always bigger than the letter.
I learned that the hard way with a client years ago, back when more of our work was in person and on paper. He’d been collecting brown envelopes from CRA for three years and hadn’t opened one of them. When we finally sat down and went through the pile together, two of them were cheques. Over two thousand dollars in child tax credits, sitting in a drawer, because he was afraid of what might be inside.
That’s the thing about the brown envelope. It is almost never what you’re afraid of. And on the rare occasion it is, ignoring it is the most expensive thing you can do.
These days it often isn’t an envelope at all. It’s an email saying you have new mail in your CRA account. Same rule applies. Log in to My Account or My Business Account, open it, and read what they’re actually asking for. Most of it is time-sensitive, most of it is not scary, and avoiding it does not make it go away.
Review or audit? They are not the same thing
A review is narrow. CRA picks one thing, usually one type of expense or one credit, for one tax year, and asks you to back it up. If you run a business you might see a GST review, a payroll review, a T4 review or a corporate tax review. Different departments, same idea: show us the paperwork behind this number.
An audit is a different beast. It’s a full look at your business, all your income and all your expenses, sometimes across more than one year. Audits take a lot of CRA resources, so they don’t happen at random. They happen when CRA has seen a pattern: repeated late filing, a history of mistakes, or numbers that suggest there’s a meaningful amount of tax to recover.
I tell clients to think about it like this. A reviewer’s time has to pay for itself. If CRA is putting a person on your file, they expect that person to find something. Regular people doing their honest best with their taxes are rarely worth that time. Reviews, on the other hand, are cheap to run and often partly random. Getting one doesn’t mean you did anything wrong. It usually means you got picked.
What actually triggers a review or an audit
The triggers are the same for both; the scale is what changes. These are the ones I see most often.
A big swing in income or expenses. Growth is a good problem, but a jump in expenses from one year to the next stands out, especially for sole proprietors whose business numbers sit on their personal return.
Numbers that don’t match your industry. CRA classifies every business with a NAICS code and compares your expenses to others in the same code. If yours run well above the norm, expect a question. That’s not a reason to under-claim. It’s a reason to have the receipts.
Vehicle expenses. Reviewed constantly. Claiming 100% business use of a vehicle is the classic red flag. Keep a log. Claim the real percentage.
Home office. Very easy to do wrong, so very often checked. If you want the detail, I’ve written it up here: Home office expenses: what you can actually claim.
Meals and entertainment. Same reason as home office. The rules are specific and people guess.
Large charitable donations. Big relative to your income and they’ll want to see the receipts.
Missing income. A T4, a T5, a slip you forgot. CRA already has a copy, so when one is missing they start wondering what else is.
Recurring losses. A business or rental property that loses money year after year raises the question of whether it’s really a business.
Inconsistency, and not filing. Filing late once is noise. Filing late every year, or not filing until they ask, tells CRA you’re disorganised, and disorganised returns have errors in them.
None of these mean you’re in trouble. They mean you need to be able to show your work.
You got the letter. Here’s what to do
Read the whole thing, twice. Note exactly what they’re asking for, which tax year, and the deadline. Then send exactly that. Not more. Every extra document you volunteer is another thing they can ask about.
Watch the deadline. The letter tells you how long you have, and CRA does hold you to it even though they’re not always quick on their side. If you already know you can’t pull everything together in time, call the number at the bottom of the letter right away and ask for an extension. I have never had one turned down when a client called early. The ones that get refused are the last-minute ones with no reason behind them. But if you ask for more time, meet the new date. Missing an extension you asked for is a real problem.
Gather the documents. This is where the boring bookkeeping habits pay off. If your receipts live in Hubdoc or attached to transactions in your accounting software, you pull a report, grab the receipts behind it, and you’re done in an afternoon. If they’re in a shoebox, this is the week you wish they weren’t.
Send it through your CRA account, not the mail. You can still fax or post documents. Don’t. Use Submit Documents in My Account or My Business Account. You get a confirmation and a case number, and there’s a record of what went in and when. Combine a stack of receipts into one PDF, or a few, rather than uploading them one at a time. Take it from someone who has done it the slow way.
If the letter reads like Greek, ask. Call the agent named on it and say: this is what I have, this is how I have it, what exactly do you need to see? I have found CRA reviewers to be, for the most part, decent humans. Tell them plainly where you’re at and they’re usually reasonable. Or hand the letter to your accountant and let them translate.
The part nobody tells you
The review will arrive at the worst possible moment. It always does. It will land in the week you have the least time, the biggest deadline, the sick kid. That’s not bad luck, it’s just that there is never a good week for it.
So the real preparation isn’t about CRA at all. It’s about your future self opening that letter, knowing every receipt is already filed and findable, and dealing with it in an hour instead of a lost weekend. Keep your records where you can reach them. Answer right away. Ask for time if you need it. Get the documents in. You’ll be fine.
Not sure your books would survive a look?
That’s exactly what The Books Check-Up is for. We go through your bookkeeping the way a reviewer would, tell you what’s solid and what isn’t, and give you a recorded video walkthrough of what to fix, within 7 to 10 business days. Better to hear it from me than from a letter.
And if a letter has already landed, get in touch. We’ll help you sort out what they’re asking for and what to send.