How to Prepare for a Business Audit: A Canadian Business Owner’s Guide 

No entrepreneur likes the idea of a Canada Revenue Agency (CRA) audit. Even when your records are accurate, the process can be stressful and time-consuming. The good news is that a CRA audit doesn’t have to be overwhelming. With proper preparation and a solid understanding of what auditors look for, you can navigate the process with confidence and keep your business running smoothly.

This guide explains why audits happen, what to expect, and how to get ready—step by step.

1. Understand Why the CRA Might Audit Your Business

CRA audits are usually triggered for one of three reasons:

• Random selection: Some businesses are chosen purely for routine checks.

• Inconsistencies or red flags: Significant changes in revenue, unusually high deductions, or discrepancies between your records and third-party slips (like T4 or T5 forms) can draw attention.

• Industry comparisons: If your margins differ sharply from industry averages, the CRA may want to verify your reporting.

Knowing that an audit doesn’t automatically mean wrongdoing can help you stay calm and focused.

2. Review the CRA’s Initial Letter Carefully

The CRA will send a formal letter outlining:

• The scope of the audit (which years and which types of records).

• The information they want to review—such as bank statements, invoices, or payroll records.

• The deadline for providing documentation.

Read this letter closely and note all dates. If anything is unclear, contact the CRA auditor or your accountant right away for clarification.

3. Gather and Organize Your Financial Records

Auditors will want to see complete and accurate records. Collect the following:

• Bank statements and cancelled cheques.

• Invoices and receipts for income and expenses.

• GST/HST returns and related documentation.

• Payroll records (T4 slips, CPP and EI remittances).

• Corporate records (Articles of Incorporation, minute books) if you are incorporated.

Arrange records chronologically and ensure they match what you filed on your tax returns. Using cloud-based accounting software such as QuickBooks or Xero can simplify this process.

4. Double-Check Your Bookkeeping

Before handing anything over, reconcile your records:

• Make sure totals on your bank statements match your books.

• Verify that all expenses are properly categorized and supported by receipts.

• Ensure sales tax collected and remitted matches your GST/HST filings.

• Check that payroll deductions were correctly calculated and remitted.

Spotting and correcting simple errors before the auditor does will save time and demonstrate professionalism.

5. Prepare Your Explanations

If you have unusual transactions—large one-time expenses, sudden revenue spikes, or major asset purchases—be ready to explain them. Brief written notes or a simple spreadsheet summary can help auditors understand the context quickly and reduce follow-up questions.

6. Work With a Chartered Professional Accountant (CPA)

A CPA experienced with CRA audits can:

• Communicate directly with the auditor on your behalf.

• Ensure your documentation is complete and properly organized.

• Provide professional explanations for complex transactions.

• Help you respond promptly to any requests for additional information.

Having a professional intermediary often reduces stress and speeds up the process.

7. Understand Your Rights and Responsibilities

During an audit:

• You have the right to be treated fairly and courteously.

• You must provide accurate information and allow access to requested records.

• You can request that your accountant or representative be present at any meetings.

• You can appeal a reassessment if you disagree with the CRA’s conclusions.

Familiarize yourself with the CRA’s Taxpayer Bill of Rights to understand the protections and obligations that apply.

8. Keep Communication Professional and Timely

Respond to CRA inquiries promptly and maintain a professional tone. If you need more time to provide documents, ask the auditor for an extension in writing. Good communication can build trust and help the audit move efficiently.

9. Learn From the Experience

Once the audit is complete, the CRA will issue a report and, if necessary, a Notice of Reassessment. Whether the outcome is neutral, positive, or involves additional taxes, use the feedback to improve your internal processes:

• Strengthen recordkeeping procedures.

• Review expense tracking and GST/HST remittance practices.

• Schedule regular check-ins with your accountant to stay audit-ready year-round.
  
  

10. Adopt an “Always Ready” Mindset

The best way to handle a CRA audit is to operate as if one could happen at any time:

• Keep records for at least six years, as required by the CRA.

• Reconcile your accounts monthly.

• File all returns—income tax, GST/HST, payroll—on time.

• Review your books with a CPA at least once a year.

By embedding these habits into your business routine, an audit becomes far less intimidating.

The Bottom Line

A CRA business audit can feel daunting, but with organized records, clear communication, and professional support, it’s a manageable process. Understanding why audits occur, knowing your rights, and preparing in advance will help you handle an audit efficiently—and might even reveal ways to strengthen your financial systems.

Need help preparing for an upcoming CRA audit or simply want to ensure you’re audit-ready? Contact our team of Canadian CPAs today to schedule a confidential consultation.