How to Prepare Your Corporation for a CRA Audit

To prepare your corporation for a CRA audit, reconcile your books, gather the source documents for every year under review, authorize your accountant to deal with the CRA, and answer each request completely and on time. Most audits are document reviews rather than accusations. A well-organized file usually means a shorter audit and fewer adjustments.

This guide explains why corporations get selected, what happens at each stage, what to have ready, and what your options are if you disagree with the result.

Why does the CRA select a corporation for audit?

The CRA’s audit guide, RC4188, What you should know about audits, says files are chosen based on a risk assessment. That assessment looks at things like how often certain errors show up and whether there are signs of non-compliance. The CRA may also compare your return with similar businesses, or open your file because of information from another audit, such as an audit of a supplier, customer or related company.

In practice, the patterns that tend to draw attention for small Ontario corporations include:

• Expenses that look high compared with similar businesses, or that jump sharply from one year to the next
• Several years of losses while the owner still has a comfortable lifestyle
• A large or growing debit balance in the shareholder loan account (see our guide to shareholder loans)
• Revenue on the T2 that does not match the sales reported on GST/HST returns
• Large or repeated HST refund claims
• Cash-heavy industries such as restaurants, construction and personal services
• Vehicle, meal and travel claims without logs or receipts

Being selected does not mean the CRA has found a problem. It means your file is worth a closer look, and your job is to show that the numbers are supported.

How does a CRA audit work, step by step?

Most corporate audits follow the same path. The auditor contacts you by mail, phone or both, and for businesses also sends a letter confirming the details. The audit usually takes place at your business, your home or your representative’s office. If it is not done on-site, it happens at a CRA office, and your auditor may work from another region.

One practical point: CRA auditors cannot accept records by email because it is not secure. Use the CRA’s secure online channels, or your representative’s, to send documents.

If the audit will lead to more tax, the auditor can estimate the amount before the notice of reassessment is issued. Paying early stops interest from building. In 2026 the CRA’s prescribed rate on overdue taxes is 7%, so delay is not cheap.

What documents should you have ready?

The auditor’s request will be specific, but these are the records almost every corporate audit touches. Having them organized before the first meeting saves weeks.

• General ledger, trial balance and year-end adjusting entries
• Financial statements and T2 returns for the years under review
• Bank, credit card and line-of-credit statements, with reconciliations
• Sales invoices, contracts and a breakdown of revenue by customer
• Purchase invoices and receipts for expenses claimed
• Payroll records: T4 and T4A slips, remittance records and employee files
• The shareholder loan account, with support for every entry
• The minute book, including dividend and bonus resolutions
• GST/HST returns and a reconciliation of HST collected to recorded sales
• Fixed asset additions and the capital cost allowance (CCA) schedule
• Vehicle logbooks and support for home office or travel claims
• Agreements with related companies, family members and shareholders

If your books are behind, catch them up before the audit starts. Our bookkeeping team often reconstructs a year’s records from bank data so the file is complete before the auditor arrives.

How long must you keep records, and how far back can the CRA go?

The CRA’s record-keeping rules require you to keep records and supporting documents for six years from the end of the last tax year they relate to. If a return was filed late, the six years run from the date you filed it. If you have an objection or appeal, keep everything until it is resolved and the time for any further appeal has passed, or six years, whichever is later. You need CRA permission to destroy records early.

How far back the CRA can reassess is a separate question. Under section 152 of the Income Tax Act, the normal reassessment period is three years for a Canadian-controlled private corporation (CCPC) and four years for other corporations. The clock starts on the date of the original notice of assessment, not the filing date. The CRA can go further back where there was misrepresentation through neglect, carelessness, wilful default or fraud, or where you signed a waiver.

Who should deal with the auditor, and how do you authorize a representative?

You are allowed to have a representative deal with the CRA for you, and for most owners it is the better choice. A representative keeps communication in one place, makes sure requests stay within the audit’s scope, and knows when to push back.

You may have heard that Form RC59 is the way to authorize an accountant. It no longer is. The CRA’s authorization page lists the current options for businesses:

• My Business Account: the fastest route; you add the representative yourself
• Represent a Client: your accountant submits the request and you confirm it in My Business Account
• EFILE: your accountant submits the request through certified tax software
• Form AUT-01: a paper form for offline access only (phone, mail, fax or in person), which must reach the CRA within six months of the date you sign it

A few habits help no matter who is in the room. Be truthful and courteous. Answer the question asked, and do not guess; it is fine to say you will check and follow up. Keep a log of every request and what you provided. The CRA’s Taxpayer Bill of Rights sets out 16 rights, including the right to be treated professionally and to have your file handled fairly.

What if you disagree with the auditor’s proposal?

Start with the proposal letter. You generally have 30 days to respond, and this is the cheapest point to fix an issue. Send a clear written explanation with supporting documents. If you still cannot agree, you can ask to speak with the auditor’s team leader.

If the CRA issues a notice of reassessment you disagree with, you can file a formal objection. According to the CRA’s objection page, a corporation has 90 days from the date on the notice. Individuals get the later of one year after their filing deadline or 90 days. You can object online through My Business Account, through your representative in Represent a Client, or on Form T400A by mail.

While a corporate objection is open, you generally do not have to pay the disputed amount, but interest keeps building if you lose. Large corporations are the exception and must pay 50% of the disputed amount. If Appeals does not resolve the dispute, the next step is the Tax Court of Canada.

Can the Voluntary Disclosures Program help before an audit?

If you know about an error before the CRA does, the Voluntary Disclosures Program (VDP) can reduce penalties and interest. New rules apply to applications received on or after October 1, 2025, set out in Information Circular IC00-1R7.

To be valid, an application must be voluntary, cover a tax year at least one year past its filing due date, involve a potential penalty or interest, be complete with supporting documents, and include payment of the estimated tax owing or a request for a payment arrangement. You apply on Form RC199. An application is not voluntary if an audit or investigation has already started on the information you are disclosing, so timing matters. The VDP does not reduce the tax itself, only penalties and interest.

How MNJ CPA can help

We prepare corporations for audits, act as the authorized representative, and handle proposal responses and objections when needed. If you have received a CRA letter, or want a second look at your records before one arrives, see our CRA audit representation service or contact us for a confidential conversation.