How to Prepare for a CRA Corporate Tax Audit

A Notice of Audit from the CRA is stressful, but an audit is not an accusation — it is a verification process. The outcome is largely determined by how well the business is prepared before the auditor ever makes contact.

Maintain impeccable records

The foundation of a successful defence is documentation. The CRA can generally audit a T2 for up to three years from the original Notice of Assessment (longer if fraud is suspected). Corporations must keep receipts, invoices, bank statements, and payroll records for at least six years from the end of the last tax year they relate to. An auditor will not accept a credit-card statement as proof — they need the itemized receipt. A digital, organized filing system means documentation can be produced immediately when asked.

Understand what triggers an audit

Common triggers include:

• Consistent reported losses in a business that should be profitable
• Significant variances in expense categories vs. industry averages (e.g., unusually high travel and entertainment)
• Discrepancies between HST returns, payroll remittances, and the T2
• Shareholder loan balances that remain unpaid across multiple fiscal years

How to respond

When the audit begins, respond promptly — but provide exactly what is asked, nothing more. Volunteering additional information can inadvertently expand the scope of the audit.

Work with a professional representative

Authorizing your CPA to communicate with the CRA on your behalf ensures responses are accurate, grounded in tax law, and stripped of emotional reactions. A CPA understands the parameters of an auditor's authority and can push back if requests exceed scope.