The CRA is using technology to identify 'high-risk taxpayers.'Sean Kilpatrick/The Canadian Press
Taxpayers responding to a Canada Revenue Agency (CRA) audit need to develop a strategic communication plan and understand their rights as the agency steps up compliance, experts say.
Understanding the agency’s audit policy and procedures, seeking expert advice and documenting all interactions with the CRA can help protect taxpayers from potential overreach, said Jeanne Cheng, partner and regional tax leader with MNP LLP, during a presentation at a Canadian Tax Foundation conference in Toronto last week.
In its 2025–26 departmental plan, the CRA says it will continue to leverage technology “to more accurately and efficiently identify high-risk taxpayers” and “to deliver compliance activities focused on addressing tax avoidance within the wealthy population.”
Ms. Cheng said the agency’s audit activity has “intensified and expanded in recent years,” with the CRA now relying largely on artificial intelligence and data analytics to select which taxpayer groups to audit.
In addition, the federal government is set to provide the CRA with new, expanded audit powers, including the power to compel testimony under oath.
The proposed legislation “effectively imports the discovery process that we typically see in Tax Court [of Canada] appeals into the audit process,” said Kelly Ng, partner, tax litigation and dispute resolution at KPMG Law LLP in Toronto, during a presentation at the same conference.
However, the proposed legislation doesn’t include the types of safeguards typically associated with legal proceedings, Ms. Ng said.
Recent areas of focus
Ms. Cheng says the CRA has focused recent audits for individuals on foreign tax credits and investments, the claiming of large deductions and credits, and real estate transactions, such as the frequent selling of property and the use of the principal residence exemption.
For corporations, the CRA is focusing on auditing businesses with cash transactions, such as restaurants, construction firms and auto repair shops; vehicle and travel expense claims; and aggressive tax-planning transactions, such as those that may be undertaken during mergers and acquisitions.
Ms. Cheng says that, typically, the CRA initiates an audit by sending the taxpayer a letter outlining the scope and timing of the review along with a list of requested information. A CRA auditor may also request to meet with the taxpayer and/or visit their business premises.
A taxpayer or their advisor should consider scheduling an initial call with the CRA auditor to determine the specific focus of the audit, Ms. Cheng says. Submitting an extensive amount of information the CRA hasn’t asked for in response to an audit letter “may not be helpful and it may actually change the direction or the scope of the audit altogether.”
All conversations and interactions with the CRA should be documented, she says, to create an audit trail. The taxpayer or advisor should also follow up to make sure the CRA receives the submitted material.
Establishing a rapport and demonstrating a willingness to co-operate is also a good idea, Ms. Cheng added.
At the same time, the taxpayer should familiarize themselves with the CRA audit manual and the Taxpayer Bill of Rights, which includes the right “to complete, accurate, clear, and timely information,” to protect themselves if they feel the CRA is overreaching.
Ms. Ng said that citing the CRA’s recently updated guidance on how the agency obtains information during its compliance activities, for example, may bolster a taxpayer’s arguments when “pushing back” on whether a request is reasonable or not.
The taxpayer may also consider making an access to information and privacy (ATIP) request to see the CRA’s “audit plan,” which outlines an audit’s scope, timing and other details, Ms. Cheng says.
Taxpayers who don’t get the outcome they wanted can make the ATIP request toward the end of the audit process or after the reassessment, she says.
A taxpayer who disagrees with the result of an audit may also consider consulting their tax lawyer on next steps, such as filing a notice of objection within 90 days of a reassessment.
“It is very important to track those deadlines to make sure you don’t miss them,” Ms. Cheng says.