How far back can the CRA audit me?

The normal reassessment period is generally three years from the date of your original notice of assessment for personal and corporate income tax, and four years for GST/HST. However, if the CRA believes there was fraud or gross negligence, it can reopen "statute-barred" years beyond those limits.

Do I have to let the auditor into my home?

Auditors have broad powers to inspect the place where you carry on business or keep records, including a home office. In practice it is often better to arrange for the meeting and records review to happen at your accountant’s office instead. Speak to a professional if you are unsure of your rights.

What is a waiver and should I sign one?

A waiver lets the CRA reassess a year that would otherwise be statute-barred (closed). Signing one gives up an important protection. The strong advice from tax professionals is never to sign a CRA waiver without first consulting legal counsel.

Will I automatically get a penalty after an audit?

Not automatically. A reassessment changes the tax owing, but a gross negligence penalty (50% of the understated tax, or 25% for HST) only applies where the CRA can show it was warranted. If a penalty is proposed, ask to see the penalty recommendation report and consider getting representation.

Can I have someone represent me during the audit?

Yes. You have the right to be represented by a person of your choice. Having an accountant or tax lawyer deal with the auditor is common and can help you avoid costly missteps.

What records should I keep, and for how long?

Keep receipts, bank statements, deposit slips, and cancelled cheques. The Income Tax Act generally requires records to be kept for six years from the end of the tax year they relate to, and many advisors suggest keeping them a year or two longer in case older years are reopened.

What to do when the CRA audits you

Few things make a Canadian taxpayer panic like the three letters "CRA" arriving in the mail with the word "audit" attached. The good news is that an audit is a defined process with clear stages, and knowing what is coming — and what your rights are — is the single best way to reduce the stress and protect your wallet. This guide walks through how a Canada Revenue Agency audit works from the first letter to the final reassessment, and what you can do at each step.

Why was I selected for an audit?

An audit is not necessarily a sign that you did something wrong. The CRA describes the purpose of an audit as monitoring and maintaining Canada’s self-assessment tax system. Some files are picked purely at random, but most are flagged by risk factors.

The CRA runs taxpayer information through computer systems that compare your figures against others in the same industry or occupation. When your numbers stand out, your return can be put on a list for review. The agency also runs targeted "audit projects" on industries with a lot of cash transactions, follows up on tips from informants, and audits people connected to another business it is already examining.

Being self-employed (no tax is withheld at source, so there is more room for error)
Running a cash-heavy business such as a restaurant, bar, or construction trade
Claiming expenses that are far higher than others in your industry
A mismatch between your GST/HST filings and your income tax return
Large or round-number vehicle, home-office, or meals-and-entertainment claims

What are the stages of a CRA audit?

The process starts with an audit letter. The letter either requests an initial meeting or lists the documents the auditor wants to see — books, records, contracts, invoices, and anything else supporting your returns. A specific issue, such as the sale of a property, may be named.

Next comes information gathering. The auditor reviews your records and may want to visit your business or home office. After the review, the auditor issues a "proposal letter" setting out the changes they intend to make to your return, with explanations. You generally have 30 days to provide additional documentation that could change the auditor’s mind.

Finally, the auditor issues a Notice of (Re)assessment reflecting their final position. Once issued, that reassessment becomes the official amount owing unless you formally dispute it. As Dale Barrett puts it in Victory Over the CRA, "no matter how pleasant the auditor is, the audit process is adversarial" — the auditor’s job is to find additional tax, not to confirm that you got everything right.

How should I handle the auditor?

Cooperate, but stay disciplined. An auditor can only require information relevant to the audit, so there is no benefit to volunteering extra details or making casual conversation about your vacations, your car, or your lifestyle — innocent comments can prompt new questions.

Give the auditor exactly what is required and no more. If you are asked for the journals for a three-year period, you do not need to hand over a bookkeeping file containing ten years of data. There is nothing wrong with having an accountant or representative deal with the auditor on your behalf; it is your right, not an admission of guilt, and it lets a professional field the difficult questions.

Never let the auditor take your original receipts or documents — provide copies
Keep your records organized; the burden of proof is on you to support your claims
Do not let yourself be pressured into signing a waiver without legal advice
If you suspect the matter has turned into a criminal investigation, stop and call a lawyer

What is a "net worth" audit and why should I worry about it?

If your books and records are weak — or sometimes even when they are not — an auditor may use the "net worth" method, also called a lifestyle audit. Instead of examining your actual records, the auditor estimates your income by measuring the increase in your net worth over a period and adding an estimated cost of living, often drawn from Statistics Canada averages.

These audits are prone to large errors. A common one is failing to account for transfers between your own accounts — moving the same money between a line of credit and a chequing account can be mistakenly counted as income twice. The CRA’s own audit manual says the net worth method should be a technique of last resort, used only where there is no other logical basis for assessment. If an auditor uses it, make sure every inter-account transfer, gift, loan, inheritance, and other non-income deposit is documented.

What if I disagree with the result?

You are not stuck with an incorrect reassessment. After an audit, your formal avenue to challenge it is to file a Notice of Objection, and after that, if necessary, to appeal to the Tax Court of Canada. Crucially, in court a judge can weigh evidence such as bank statements, photos, and your own testimony — not just the auditor’s assumptions — so a position that failed during the audit can still succeed later.

This is exactly why complete records matter so much. Good documentation is, in effect, audit insurance: it lets you defend every expense and overturn a crude or mistaken assessment.

This is general information, not legal or tax advice — for your own situation, consult a qualified accountant or tax lawyer.

Frequently asked questions

How far back can the CRA audit me?: The normal reassessment period is generally three years from the date of your original notice of assessment for personal and corporate income tax, and four years for GST/HST. However, if the CRA believes there was fraud or gross negligence, it can reopen "statute-barred" years beyond those limits.
Do I have to let the auditor into my home?: Auditors have broad powers to inspect the place where you carry on business or keep records, including a home office. In practice it is often better to arrange for the meeting and records review to happen at your accountant’s office instead. Speak to a professional if you are unsure of your rights.
What is a waiver and should I sign one?: A waiver lets the CRA reassess a year that would otherwise be statute-barred (closed). Signing one gives up an important protection. The strong advice from tax professionals is never to sign a CRA waiver without first consulting legal counsel.
Will I automatically get a penalty after an audit?: Not automatically. A reassessment changes the tax owing, but a gross negligence penalty (50% of the understated tax, or 25% for HST) only applies where the CRA can show it was warranted. If a penalty is proposed, ask to see the penalty recommendation report and consider getting representation.
Can I have someone represent me during the audit?: Yes. You have the right to be represented by a person of your choice. Having an accountant or tax lawyer deal with the auditor is common and can help you avoid costly missteps.
What records should I keep, and for how long?: Keep receipts, bank statements, deposit slips, and cancelled cheques. The Income Tax Act generally requires records to be kept for six years from the end of the tax year they relate to, and many advisors suggest keeping them a year or two longer in case older years are reopened.