CRA Audit Representation.
Strategy and control from the moment the CRA reaches out, through the close of the audit.
How we approach this work.
A CRA audit is not just a request for documents. It is the construction of a record that can shape your tax position for years and that, if mishandled, can produce reassessments running into hundreds of thousands of dollars in tax, interest, and penalties. The decisions made in the first weeks of an audit often determine what is provable, and what is contestable, much later.
We act for taxpayers from the first letter the CRA sends. That includes desk audits, full field audits, large-file audits, GST/HST audits, and integrated audits crossing more than one tax year. We manage the production of records, frame the responses, attend interviews, and address proposal letters before any reassessment issues.
What triggers a CRA audit
Most audits are not random. They are triggered by something the CRA has flagged: a third-party slip that does not match the return, an unusually high refund claim, a deduction outside the statistical range for a given industry, a tip from another government agency, or a taxpayer's appearance on a CRA project file.
Understanding the actual trigger is half the battle. Once we know what the auditor is looking at, we can focus the response on the right issues rather than producing an open-ended pile of records that invites scope creep.
Desk audit vs field audit
A desk audit is conducted by correspondence. The CRA asks for specific items by mail, you produce them, and the auditor evaluates them at a CRA office. These can still result in significant reassessments.
A field audit is conducted on site, usually at the taxpayer's place of business. The auditor reviews records in person, interviews staff, and inspects operations. The dynamic is different. The risk of off-the-cuff statements and unstructured production of documents is much higher.
We approach both with the same discipline: control the record, respond in writing wherever possible, and treat every communication as something that may end up in a Tax Court hearing.
What not to do when the CRA contacts you
Do not provide records on a casual basis. Do not agree to an interview without preparation. Do not assume that being cooperative means being open-ended. The CRA auditor's role is not to help you. It is to assess.
Get advice early. The cost of involving counsel at the audit stage is almost always lower than the cost of fixing problems at objection or in Tax Court.
Why having a lawyer present changes the dynamic
When a CRA auditor knows that legal counsel is involved, the file is handled differently. Requests are tighter. Proposals are more carefully drafted. Aggressive positions are reconsidered. That is not because the CRA is doing anything improper. It is because the auditor knows that everything they put on the file may eventually be tested by a court.
Our role is to make that record work for you, not against you.
Solicitor-client privilege and why it matters during an audit
Communications between you and your lawyer about the audit are protected by solicitor-client privilege. Communications with your accountant generally are not. That distinction becomes important when the CRA asks for working papers, internal memos, or correspondence about the very issues under audit.
Where strategic analysis of a tax position needs to be created or reviewed during an audit, having that work directed by counsel keeps the analysis privileged. Where the accountant's involvement is essential, we can structure the engagement so that their work is performed in support of legal advice and remains protected.
Net worth and indirect verification audits
In some files, the CRA does not audit the books directly. Instead, it estimates income using indirect methods: a net worth assessment, a deposit analysis of bank accounts, or an industry-based projection. These methods can produce very large reassessments built on assumptions rather than ledger entries.
Defending an indirect audit is a different exercise. It requires reconstructing source-of-funds records, identifying non-taxable receipts (gifts, loans, transfers between accounts, prior-year savings), and demonstrating that the CRA's assumptions do not hold. We have run these defences at audit, at appeals, and through the Tax Court.
Penalties: gross negligence and beyond
When the CRA proposes a reassessment, it often also proposes penalties. Gross negligence penalties under section 163(2) of the Income Tax Act add 50 percent of the unreported tax. Repeated failure to report income carries its own penalty regime. False statement penalties can apply to advisors as well as taxpayers.
Penalties are not automatic. The CRA bears the burden of proving the facts that justify them, and the threshold for gross negligence is high. A meaningful share of our audit work is dedicated to taking penalties off the table before assessment, where the conduct does not meet the legal standard.
Statute-barred years and the reassessment window
For most individuals and Canadian-controlled private corporations, the CRA generally has three years from the date of the original Notice of Assessment to reassess a given tax year. After that, the year is statute-barred and can only be reopened in narrow circumstances, such as a misrepresentation attributable to neglect, carelessness, or wilful default.
Whether a year is open or closed is often a live issue in audits that reach back. We assess the limitation position early and, where the CRA is reaching into closed years, that becomes part of the defence.
What our audit engagements typically include
A typical engagement covers: review of the audit letter and any prior correspondence, filing of an authorization with the CRA, intake of records from you and your accountant, a written response strategy, management of all communications with the auditor, attendance at any interviews, written submissions on contested issues, and a detailed response to any proposal letter before reassessment.
Where a reassessment ultimately issues, we transition the file directly into the objection process without a gap. The work done at audit becomes the foundation for what comes next.
Is this the right service for your situation?
If you have received an audit letter, a query letter, a proposal letter, or any communication from the CRA indicating that your return is being examined, this service is for you. We act for individuals, professional corporations, owner-managed businesses, and larger corporate taxpayers. There is no minimum or maximum file size.
Common questions.
How long does a CRA audit take?
Most income tax audits run six to eighteen months from the first letter to a final assessment. GST/HST audits can be shorter. Complex audits involving multiple years or unreported income allegations often take longer. Once we are on a file, we work to keep the timeline as tight as the issues allow.
Can I just deal with the CRA myself?
You can, and many taxpayers try. The risk is that statements made and documents produced during audit shape what is contestable later. A small misstep at the audit stage can become a much larger problem at objection or in Tax Court. Getting advice early is almost always cheaper than fixing problems after the fact.
What does it cost to be represented during an audit?
Audit representation is most often billed on a scoped basis. After we review the initial materials, we will quote either a fixed fee for defined work or a clear hourly arrangement with an estimated range. You will know what to expect before any substantive work begins.
Will the auditor know I have hired a lawyer?
Yes. We file an authorization with the CRA so that all communication runs through us. From that point forward, the auditor deals with our office rather than directly with you.
What if the audit has already produced a proposal letter?
We can still act. A proposal letter is the CRA's draft view of the file. There is usually a defined window in which to respond before reassessment, and that response is often the last meaningful chance to influence the outcome before the matter shifts into the formal objection process.
What records does the CRA have the right to see?
Under the Income Tax Act, the CRA has broad powers to inspect books, records, and supporting documents relevant to the administration of the Act. That power is not unlimited. Privileged communications with counsel are protected, certain personal records are outside the scope, and overly broad requests can and should be narrowed. We assess every request before any documents leave your office.
Can I refuse a CRA interview?
There is no general legal obligation on a taxpayer to attend a sit-down interview with an auditor in most income tax audits. In practice, refusing entirely can sometimes harden the file. The right answer is usually to respond in writing where possible, and to attend any necessary meeting only with counsel present and after careful preparation.
What if I disagree with the auditor's position before they reassess?
The proposal letter stage is built for exactly that. We respond in writing with the legal authorities, the factual record, and any expert evidence that supports a different conclusion. Many proposed adjustments are reduced or dropped at this stage when the response is properly developed.
Does hiring counsel make me look guilty?
No. Sophisticated taxpayers retain counsel as a matter of course when the CRA opens an audit. The CRA itself expects it on larger files. The decision to be properly represented is a decision about prudent file management, not an admission of anything.
Your CRA file deserves serious counsel.
Whether you have just received an audit letter or you are weeks away from a Tax Court hearing, we can help. Initial consultations are confidential and we work with clients across Canada.