How to Survive a Tax Audit? A Step-by-Step Guide

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13 Mar 2025

Did you just receive a CRA tax audit notice? If so, you might be feeling anxious. The Canada Revenue Agency (CRA) reviewing your financial records can be stressful, especially if you’re unsure why you were selected. For business owners, an audit can impact cash flow, lead to reassessments, or even result in penalties. But most audits are routine, and with the right preparation, you can survive a tax audit without unnecessary trouble. Understanding why audits happen, what the CRA looks for, and how to respond can make all the difference. Whether you need tax audit help or guidance on corporate tax filing in Langley, Canada, this guide will walk you through it.

Why Might You Get Audited?

CRA doesn’t randomly select businesses for audits - there are red flags that increase the chances of being reviewed. Some common CRA audit triggers include:

Unreported income: If your reported income doesn’t match what CRA has on file, expect scrutiny.
Excessive deductions: Claiming unusually high business expenses compared to industry standards.
Cash-heavy businesses: Restaurants, salons, and other cash-driven businesses are more likely to face audits.
Frequent late filings: Missing tax filing deadlines in Canada increases your risk of being audited by the CRA.
Random selection: Sometimes, audits are just part of a routine compliance check.

Understanding what triggers an audit helps you take proactive steps to stay compliant and avoid unnecessary stress.

What to Do If You’re Selected for an Audit?

So, you’ve received an audit notice. Now what? First, don’t panic. A tax audit doesn’t automatically mean you’ve done something wrong - it just means CRA wants a closer look. Here’s what you should do:

1. Read the CRA Notice Carefully

Find out what tax years and transactions are under review.
Identify whether it’s a desk audit (done remotely) or a field audit (CRA visits your business).

2. Gather All Necessary Documents

CRA will ask for receipts, invoices, payroll records, and tax returns.
If you work with a corporate tax accountant, they should have well-organized records.

3. Stay Professional & Respond Promptly

CRA provides a deadline for submitting documents - meet it.
If you need more time, request an extension formally.

4. Only Provide What’s Requested

Don’t volunteer extra information - stick to what CRA has asked for.
Oversharing could lead to a deeper audit.

5. Work With a Professional

If the audit is complex, consider working with expert tax accountants to streamline the entire process.
Our team of corporate tax accountants can handle communication and prevent costly mistakes.

How to Survive a Tax Audit Smoothly

Follow these expert-backed tips to stay in control and avoid penalties:

1. Keep Well-Organized Records

Maintain at least six years of tax records, including receipts and invoices.
Digital bookkeeping can make record retrieval easier during audits.

2. Verify Your Tax Returns Before Submitting to CRA

Double-check calculations, income, and deductions before filing.
If errors are found during the audit, be upfront and correct them.

3. Stay Calm and Professional

If CRA auditors visit your office, treat them with respect and cooperation.
Answer questions honestly, but don’t speculate - stick to facts.

4. Clarify Any Unclear Findings

CRA will send a report outlining its findings.
If anything seems off, ask for clarification before accepting changes.

5. Challenge Unfair Adjustments

If you disagree with CRA’s decision, you can appeal within 90 days.
An experienced tax accountant can guide you through the appeal process.

How to Avoid Future Tax Audits?

While no business is 100% immune from audits, the following best practices can reduce your risk: File on time: Late submissions attract CRA’s attention, so make sure to stay updated with the tax filing deadlines. Separate personal and business expenses: Mixed finances can raise red flags. Avoid excessive deductions: Keep your claims reasonable and well-documented. Work with professionals: Tax services for businesses in Surrey ensure compliance and minimize errors. Suggest Read: How to Avoid CRA Audit?

How CJCPA Helped Businesses Survive Tax Audit

A transport company was audited by the CRA after their tax returns were filed incorrectly by a non-CPA, leading to discrepancies in reported income and expenses. The company was at risk of penalties and additional tax liabilities. We quickly conducted a detailed review, identified the miscalculations, and worked with the CRA to correct the errors. By preparing accurate financial records and ensuring compliance with tax regulations, we helped the company avoid penalties and finalize their returns within the deadline. With experience handling hundreds of such CRA audits, we help businesses address compliance issues, correct filing errors, and navigate the audit process efficiently minimizing risks and ensuring accurate tax reporting.

FAQs: Quick Answers to Scary Questions

What will trigger a CRA audit?

Discrepancies between the GST/HST you collect and remit can trigger an audit. Always ensure your filings are precise.

What income is most likely to get audited?

Failing to report all income or taking excessive deductions raises red flags. Keep clear, separate records.

What not to say during an audit?

Avoid blaming or vague language. Stick to clear, factual answers without unnecessary technical jargon.

Need Help with a CRA Audit? We’ve Got You Covered

If you're dealing with an audit or want to avoid one in the future CJCPA’s experienced team can help. Our tax accountants assist businesses with corporate tax filing in Surrey, Canada, ensuring compliance and reducing the risk of penalties. Don’t navigate an audit alone - reach out today for expert tax audit help!

How to Survive a Tax Audit? A Step-by-Step Guide

Why Might You Get Audited?