If you’ve received a letter from the Canada Revenue Agency (CRA) about an audit, you’re not alone—and you’re not powerless. Whether you’re a Calgary contractor, a BC retailer, or a Saskatchewan farmer, the right preparation can make a big difference in outcomes. This guide explains how CRA audits work, what triggers them, and the step-by-step actions you can take now to protect your business.
As a Calgary-based firm serving Alberta, Saskatchewan, and BC, Big Country Accounting Group provides practical, local tax help to get you through with confidence.
What Is a CRA Audit?
A CRA audit is a review of your tax filings and records to verify they’re accurate and complete. The CRA can audit individuals (T1), corporations (T2), GST/HST, payroll/source deductions, and specific claims (e.g., SR&ED).
Common types include:
- Desk review: Done by phone or email, focused on specific items (e.g., home office, vehicle, GST input tax credits).
- Office audit: You bring records to a CRA office or submit electronically.
- Field audit: CRA visits your home, office, or accountant’s office to review books on site.
Note: PST is audited by provinces. If you operate in BC or Saskatchewan, you could face a provincial PST audit in addition to a CRA GST/HST or income tax audit. We support both.
Common CRA Audit Triggers in Western Canada
Understanding triggers helps you prepare and prevent issues:
- Large swings in income or expenses year-over-year without clear documentation.
- High vehicle, meals, home office, or travel claims—especially for contractors and professional services.
- GST/HST input tax credits (ITCs) that don’t align with your revenue or industry averages.
- Payroll remittance discrepancies (T4 summaries vs. PD7A remittances) or late filings.
- Contractors vs. employees issues (construction, trucking, oilfield services) and missing T5018s for subcontractors.
- Cash-heavy industries (restaurants, retail) and unreported e-commerce or platform sales. Real estate flips or assignment sales treated as capital gains instead of business income.
- Real estate flips or assignment sales treated as capital gains instead of business income.
If you operate across Alberta, Saskatchewan, and BC, cross-border transactions, intercompany charges, and PST/GST mix-ups can also draw attention.
How to Prepare for a CRA Audit: Step-by-Step
- Read the letter carefully
- Identify the type of audit (desk, office, field), the period(s) under review, and the specific items requested.
- Note deadlines. Most responses are due within 30 days.
- Appoint a representative
- Give your accountant authority to communicate with CRA. Use My Business Account or Form AUT-01 (business) / T1013 (individual, now via Represent a Client).
- Having CRA speak to your accountant helps contain scope and ensures accurate responses.
- Clarify the scope in writing
- Politely confirm what the auditor needs and the preferred format. Ask for questions in writing when possible.
- Gather records
- Sales: Invoices, contracts, POS summaries, bank deposits, e-commerce reports.
- Purchases/expenses: Supplier invoices/receipts, credit card statements, bank statements.
- GST/HST: Detailed ITC listings, tax codes from your accounting system, GST returns and working papers.
- Payroll: T4s, payroll registers, ROEs, PD7A remittance proofs, contractor lists, T5018s (if construction).
- Vehicle: Mileage logs (date, purpose, start/end km), vehicle expenses, purchase/lease agreements.
- Home office: Square footage calculations, utility bills, rent, internet.
- Other: Year-end working papers, trial balances, general ledger, adjusting entries, corporate minute book (if requested).
- Reconcile and cross-check
- Tie financial statements to tax returns, and tax returns to slips (T4/T5/T5018) and CRA account balances.
- Reconcile GST/HST collected and ITCs to your general ledger and bank.
- Organize responses
- Create an “audit binder” (digital is fine) with labeled folders by request item.
- Include schedules that summarize data and link to supporting documents.
- Meet at your accountant’s office (for field audits)
- It helps control scope, ensures all answers are accurate, and reduces disruption to your operations.
- Answer accurately and succinctly
- Don’t speculate. If unsure, say you’ll confirm and follow up.
- Provide only what’s requested—no extra personal or unrelated documents.
- Keep audit notes
- Log all communications, dates, documents sent, and verbal requests. Retain copies of everything you provide.
- If you uncover errors
- Discuss with your accountant before providing records. You may be able to correct proactively or consider a voluntary disclosure in appropriate cases.
Quick Documentation Checklist
- Bank and credit card statements for the audit period
- Sales and purchase invoices, contracts, and receipts
- General ledger, trial balance, year-end working papers
- GST/HST returns and ITC support by vendor
- Payroll registers, remittance proofs, T4/T5/T5018 slips
- Vehicle mileage logs and expense backup
- Home office calculations and bills
- Copies of prior CRA correspondence and Notices of Assessment
During the Audit: Best Practices
- Be professional and courteous; auditors are doing their job.
- Keep communications in writing when possible.
- Stick to the period and items under review; avoid volunteering unrelated information.
- Ask for reasonable time to compile additional documents if a new request arises.
- Ensure your accountant reviews all submissions before sending.
After the Audit: Outcomes and Your Options
You’ll typically receive either:
- No change: Your return stands as filed.
- Adjustments: Additional tax owing or a refund.
If you owe, interest accrues until paid. Penalties may apply for late filings, repeated failures, or gross negligence. If you disagree with proposed changes:
- Request a proposal letter and review the auditor’s working papers.
- Provide additional evidence or clarification before the final assessment.
- After a Notice of Reassessment, you generally have 90 days to file a formal Notice of Objection.
- You may be able to arrange a payment plan while an objection is in process.
Ask your accountant about taxpayer relief (interest/penalty relief) if exceptional circumstances apply.
Real-World Example: How We Helped a Calgary Trades Business
A Calgary electrical contractor operating across Alberta and taking jobs in Saskatchewan and BC was selected for a CRA GST/HST and payroll audit. The CRA questioned vehicle expenses, meals, and ITCs on subcontractor invoices. Mileage logs were incomplete, and some vendor invoices lacked GST details.
Big Country Accounting Group stepped in to:
- Rebuild mileage logs using digital calendar entries, job sites, and odometer readings to create a reasonable, defensible estimate.
- Obtain corrected invoices from suppliers to support ITCs and prepared a clean ITC schedule matching GST codes to the general ledger.
Reconcile payroll remittances, T4s, and PD7A statements to address discrepancies.
Outcome: The proposed assessment of $38,000 in tax, penalties, and interest was reduced to $6,000, with a manageable payment arrangement. We then implemented processes— receipt capture apps, vehicle log tools, and monthly reconciliations—to prevent issues in future audits.
Why Western Canadian Businesses Choose Big Country Accounting Group
- CRA audit support and representation
- GST/HST and PST compliance (BC and Saskatchewan)
- Payroll, bookkeeping cleanup, and business accounting
- Tax planning for contractors, trades, agriculture, trucking, retail, hospitality, and professional services
FAQs
How far back can the CRA audit?
Typically three to four years from the date of assessment. CRA can go back further if it suspects misrepresentation, negligence, or fraud.
How long does a CRA audit take?
A simple desk review might wrap up in a few weeks. Field audits can take several months, depending on the complexity of your records, the number of issues, and response times.
Do I have to meet the auditor in person?
Not necessarily. Many personal or corporate tax audits are handled by phone and email. If a field audit is requested, you can often have it at your accountant’s office in Calgary or another convenient location in Alberta, Saskatchewan, or BC.
What if my records are incomplete?
Don’t panic. Reasonable reconstructions are often accepted—bank statements, calendar entries, delivery logs, and supplier confirmations can help. Work with an accountant to prepare consistent, supportable estimates.
Get Help Before You Reply to CRA
The earlier you bring in an expert, the smoother the process and the better the outcome. Big Country Accounting Group helps businesses across Calgary, Alberta, Saskatchewan, and BC prepare for CRA audits, communicate with auditors, and minimize tax, penalties, and interest.
Contact us today for a confidential audit readiness consultation. Let’s protect your business and get you back to running it.
