CRA Letter and Audit Help in Toronto

Torontax helps with CRA letters and audit requests. We explain CRA letters that relate to returns we prepared at no charge. For an agreed additional fee, we can help prepare responses, communicate with the CRA on your behalf and assist with an audit once you have authorized us and we have confirmed the scope in writing. Objections are not included. The guide below explains how CRA audits work and how to prepare. Contact us or call (437) 410-7999 if you have received a CRA letter.

How Torontax can help with CRA letters and audits

• Free: we explain CRA letters that relate to tax returns we prepared.
• For an agreed additional fee: preparing responses, communicating with the CRA on your behalf, and audit assistance.
• Not included: objections.
• Before any work starts: we confirm the scope, your authorization and the fee with you.

What can lead to a CRA audit or review?

According to the CRA, its risk-assessment systems flag returns that appear to be at high risk of non-compliance, and an officer then reviews information from various sources to decide whether an audit is needed. The areas below are common reasons for questions, not a prediction that any particular return will be audited. Source: CRA, Business audits.

1. Inconsistent Income Reporting

The CRA cross-references your reported income against T4s, T5s, T3s, and information slips from employers, banks, and investment firms. If your reported income doesn’t match what third parties have reported, you may receive a reassessment or a request for information.

2. Large or Unusual Deductions

Deductions that look unusually large compared with your income, or that you cannot support, may lead to questions. Common areas include home office expenses, vehicle costs, unusually large charitable donations, and business expenses for self-employed individuals. Always keep detailed receipts and documentation.

3. Repeated Losses on Business Income

If your business reports losses year after year, the Canada Revenue Agency (CRA) may question whether it’s a legitimate business or a hobby. Having a clear business plan and showing efforts to become profitable strengthens your position.

4. Cash-Heavy Industries

The CRA says it may use indirect methods to verify income, for example when books are prone to error, business and personal bank accounts are mixed, or the business operates in a sector the CRA considers high risk for unreported income. Proper bookkeeping is essential in these industries.

5. GST/HST Return Discrepancies

If your GST/HST returns show input tax credits that are disproportionate to your reported revenue, or if your filing patterns are irregular, the CRA may initiate a review. Consistent, accurate HST filing helps you avoid problems.

How to Prepare for a CRA Audit

Step 1: Don’t Panic – Read the Letter Carefully

CRA audit letters specify exactly which tax year and which items are being reviewed. Most audits are limited-scope reviews focused on specific deductions or income items – not full financial investigations. Read the letter carefully, note all deadlines, and identify exactly what documentation they’re requesting.

Step 2: Gather Your Documentation

Organize all relevant records including receipts, bank statements, invoices, contracts, and any other supporting documents. The CRA requires you to keep records for six years from the end of the last tax year they relate to. Some records — including those affecting the sale, liquidation or wind-up of a business — must be kept longer, and destroying records early requires CRA permission. Missing documentation is the number one reason audits result in reassessments.

Step 3: Get Professional Representation

A qualified tax accountant can communicate with the CRA on your behalf, present your case in the most favorable light, and identify issues before they become problems. Professional help can make an audit more manageable and help you meet the CRA’s deadlines.

Step 4: Respond Within the Deadline

Always respond to CRA requests within the stated deadline – typically 30 days. If you need more time, contact the CRA auditor directly to request an extension. Ignoring a Tax audit letter leads to arbitrary assessments based on the CRA’s own calculations, which are rarely in your favor.

What Happens During a CRA Audit?

A CRA audit typically follows these stages:

1. Initial contact – You receive a letter or phone call requesting specific documents
2. Document review – The auditor examines your records (either at a CRA office or at your business location)
3. Findings discussion – The auditor presents preliminary findings and gives you a chance to provide additional information
4. Assessment or reassessment – The CRA issues a Notice of Reassessment if changes are made, or confirms your original filing
5. Objection period – You have 90 days to file a formal objection if you disagree with the reassessment

How to Avoid a CRA Audit

While no strategy guarantees you won’t be audited, these practices help you keep accurate, supportable records:

• Report all income – including side gigs, rental income, and cryptocurrency gains
• Keep organized records – use accounting software or professional bookkeeping services
• File on time – late filing increases scrutiny
• Be consistent – sudden large changes in income or deductions year over year draw attention
• Work with a professional – returns prepared by qualified accountants are audited less frequently
• Match CRA records – ensure your reported income matches all T-slips and information returns

How the CRA authorizes a representative

A representative can deal with the CRA about your account only with your authorization. Individuals can give it in My Account, or confirm a request from a representative who uses Represent a Client. Businesses can use My Business Account or Represent a Client. Form AUT-01 covers offline access only (for example by phone or in writing), and it must reach the CRA tax centre within 6 months of the date it is signed. See the CRA’s own guide, how to authorize a representative, for the current steps.

If you have received a CRA letter, contact Toronto Tax & Accounting Solutions or call (437) 410-7999. You can also use our remote filing form to get started.