Getting a letter from the CRA about an audit can be stressful — but many audits are preventable. While no one can guarantee you’ll never be selected, understanding what triggers a review can help you stay off the radar.

Here are five common red flags — and how to reduce your risk.

1. Large or Repeated Losses Year Over Year

If your business reports losses year after year, it may raise concerns at the CRA. They’ll want to confirm whether your activity is:

  • A legitimate business trying to turn a profit
  • Or a hobby or side hustle being used to offset personal income

What to do: Be prepared to show a business plan, efforts to grow, and documentation of how you’re working toward profitability.

2. Unusual or Aggressive Expense Claims

Claiming personal expenses as business deductions (e.g., meals, travel, vehicle, home office) is a classic audit trigger — especially if the amounts are high relative to income.

What to do: Keep detailed receipts, track business use separately, and avoid pushing the boundaries without clear support.

3. Discrepancies Between Tax Slips and Filings

The CRA matches your return against slips it receives (e.g., T4s, T5s, T5018s). If something doesn’t match — like missing income or overstated expenses — it’s likely to be flagged.

What to do: Cross-reference all slips before filing. Work with an accountant to reconcile properly if you’re unsure.

4. High Ratios of Cash Sales or Contractors

Industries with large amounts of cash sales (e.g., restaurants, trades) or subcontractors (e.g., construction) are often reviewed more closely due to historic non-compliance.

What to do: Report income in full, issue T5018s for subcontractors, and maintain clean records. Don’t cut corners on cash handling.

5. GST/HST Return Inconsistencies

Filing GST/HST returns that don’t align with your income tax filings — or repeatedly claiming refunds — can trigger closer scrutiny.

What to do: Make sure sales figures and expenses line up across filings. Keep invoices, receipts, and backup for all claims.

Final Thought: Documentation Is Everything

Even if you’re selected for a review, a clean audit is much easier if your records are organized and defensible.

We help businesses stay compliant, reduce audit risk, and respond confidently if CRA comes knocking.

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