Review vs. Audit: Not the Same Thing
When CRA contacts you about your tax return, the first thing to determine is what type of contact it is. Most letters from CRA are processing reviews — common, automated checks that are nothing to panic about. A formal audit is rarer and more serious.
The distinction matters because the appropriate response is different. Over-reacting to a routine review (or under-reacting to an audit) can both make the situation worse.
| Feature | Processing Review | Audit |
|---|---|---|
| How common is it? | Very common — millions per year | Less common; risk-based selection |
| What CRA is looking at | One specific claim on your return | Broad examination of your financial picture |
| How it arrives | Letter by mail or My Account message | Letter, then phone or in-person contact |
| Timeline to respond | Usually 30 days | Varies; CRA sets the schedule |
| Typical outcome | Claim confirmed or adjusted | Assessment adjusted, penalties possible |
The Processing Review: What It Is and Why You Got One
A processing review (also called a matching program review or income verification review) is CRA asking you to confirm one specific item on your return. The agency's automated systems flagged something that doesn't match what's in their database — or that falls outside the normal range for a return like yours.
CRA will send you a letter specifying exactly what they're asking about. Common review triggers include:
- RRSP over-contributions or room discrepancies: Your contribution doesn't match the room shown in CRA's records
- Large medical expense claims: Especially if significantly higher than prior years or compared to income
- First-time home office deduction: New claims or detailed method claims get scrutiny
- Charitable donation receipts: CRA cross-references donations against registered charities
- Rental losses: Losses claimed year over year without apparent profit motive
- T4 mismatches: Your reported employment income doesn't match the T4s CRA received from your employer
How to respond to a review: Gather the supporting documents for the specific claim they're asking about. Send them to CRA by the deadline stated in the letter — usually 30 days. Keep photocopies of everything you send. If you need more time, call CRA before the deadline and ask for an extension. Missing the deadline can result in the claim being denied, even if it was legitimate.
Most processing reviews resolve cleanly once documentation is provided. If you can substantiate the claim, CRA confirms it and closes the review. If you can't, they adjust your return — which may result in a balance owing.
What Triggers a Full Audit
CRA audits are risk-based. The agency uses data analytics, third-party reporting, and internal benchmarks to identify returns that warrant closer examination. Being selected doesn't automatically mean CRA thinks you've done something wrong — but they do think your return is worth a closer look.
Common audit triggers:
- Lifestyle vs. reported income mismatch: Owning high-value assets, taking expensive vacations, or making large purchases that appear inconsistent with your reported income — especially if CRA has third-party data (real estate records, credit card transactions from banks)
- Cash-intensive business: Restaurants, contractors, taxi and rideshare drivers, retail with high cash volumes. CRA applies net worth audits and bank deposit analysis in these industries
- Business losses for 3+ consecutive years: CRA may question whether the activity is a genuine business or a hobby loss
- Large or unusual deduction claims vs. prior years: A sudden spike in business expenses, vehicle use, or home office costs
- Offshore assets — T1135 non-filing: If you hold foreign property worth $100,000+ (CAD) and didn't file a T1135 Foreign Income Verification Statement, CRA is increasingly aggressive in pursuing this
- GST/HST discrepancies: Revenue reported on your GST/HST return doesn't match income reported on your T1 or T2
- Related-party transactions: Transactions with family members at non-arm's length prices, or income splitting that CRA deems inappropriate
- Referrals and third-party tips: Informant tiplines, CRA information sharing with foreign tax authorities, or industry-specific compliance programs
Desk Audit vs. Field Audit
A desk audit is conducted remotely. CRA sends written questions or requests for documents; you respond by mail or through My Account. It can last weeks to months depending on complexity.
A field audit means a CRA auditor comes to your home, business, or accountant's office. These are reserved for more complex situations — usually businesses, high net worth individuals, or cases where CRA needs to examine physical records. Field audits can take months or longer.
Your Rights During a CRA Review or Audit
The Canadian Taxpayer Bill of Rights gives you specific protections. Understanding them can make a meaningful difference in how an audit unfolds.
Your key rights:
Right to professional representation. You can have an accountant, tax lawyer, or other authorized representative speak to CRA on your behalf at any stage. You are not required to speak to CRA directly. Many taxpayers do better by having a professional handle all CRA communication — especially in a full audit.
Right to object (Notice of Objection — T400A). If you disagree with a reassessment, you have 90 days from the notice of reassessment (or one year from the original filing deadline, whichever is later) to file a formal objection. This puts the reassessment on hold pending review by CRA's Appeals Branch.
Right to appeal to the Tax Court of Canada. If the objection doesn't resolve the dispute, you can appeal to Tax Court. You are not required to pay the disputed amount while the appeal is underway (though interest continues to accumulate if you lose).
You also have the right to be treated professionally and to have CRA explain the basis for any proposed adjustments. If you believe a CRA auditor is acting inappropriately, you can escalate to the auditor's manager or file a service complaint.
Document Retention: How Long You Need to Keep Records
CRA can reassess your return for up to 3 years from the date of the original notice of assessment — this is the "normal reassessment period." For most individual taxpayers, that means three years back from the current year.
However, CRA can go back 6 years (or indefinitely in cases involving fraud or misrepresentation) if they have reason to believe you've made a fraudulent or grossly negligent claim. The practical implication: keep all tax-related documents for at least 6 years.
This includes:
- All T4s, T5s, T3s, and other slips
- RRSP contribution receipts
- Medical expense receipts
- Charitable donation receipts
- Business invoices, receipts, and bank statements
- Home office expense logs and records
- Vehicle logs (if claiming vehicle expenses)
- Real estate purchase and sale documents
The 6-year rule runs from the end of the tax year in question — not from the filing date. Keep records from 2018 onward if you're filing 2024 taxes. Digital scans of receipts are acceptable to CRA as long as they're legible.
If You Made an Honest Mistake: The Voluntary Disclosures Program
The Voluntary Disclosures Program (VDP) lets you come forward about errors or omissions in past tax filings before CRA contacts you. The benefit: penalties are waived, and interest may be reduced.
The key condition is voluntariness — you must disclose before CRA has initiated a review or audit of the years in question. Once CRA contacts you about a particular issue, the VDP door closes for that issue.
Common uses for VDP:
- Unreported foreign income or undisclosed foreign accounts
- Income from a side business that wasn't reported
- Failure to file T1135 for foreign property
- GST/HST that was collected but not remitted
- Errors in prior-year returns that resulted in underpayment
There are two VDP streams: General Program (full penalty relief, partial interest relief — for honest errors) and Limited Program (partial relief only — for deliberate non-compliance). CRA determines which stream applies based on the nature of the omission.
Important: The VDP does not protect you from criminal prosecution in cases of tax evasion. It's designed for civil errors, not deliberate fraud. If your situation involves potential criminal exposure, consult a tax lawyer — not just an accountant — before applying.
Fighting CRA: Tax Court Costs and What to Expect
If you disagree with a reassessment and the objection process doesn't resolve it, Tax Court of Canada is the next step. There are two procedures:
Informal Procedure (Small Claims): For disputes involving $25,000 or less in federal tax (not counting interest and penalties) or $50,000 or less in loss determinations. Faster, simpler, and you can represent yourself without a lawyer. Filing fee is minimal. Decisions are final and cannot be appealed to a higher court.
General Procedure: For larger amounts. More complex, follows formal rules of evidence, and typically requires legal representation. Cases can take 1–3+ years to resolve. Legal fees can run $50,000–$200,000+ for a complex case — meaning it only makes sense to fight if the amount in dispute justifies the cost.
Before going to Tax Court, consider the dispute resolution process at CRA's Appeals Branch — it resolves many cases without litigation. You can also request a conference with an appeals officer, which is faster than full court proceedings.
Practical note on professional help: For a routine processing review, you may not need professional assistance — respond with supporting documents and it typically resolves. For a full audit, hiring a CPA with audit experience is usually worth the cost. For a complex field audit, business audit, or anything involving potential fraud allegations, a tax lawyer with litigation experience is the right call.
Quick Reference: Review vs. Audit at a Glance
| Situation | Likely Type | Recommended Response |
|---|---|---|
| Letter asking for medical expense receipts | Processing review | Gather receipts, respond by deadline |
| Letter asking for RRSP contribution room clarification | Processing review | Check My Account, respond with documentation |
| CRA requesting all business records for 3 years | Audit | Engage a CPA immediately |
| CRA auditor requesting a meeting at your office | Field audit | Do not meet without professional representation |
| You realize you forgot to report foreign income | Potential exposure | Apply to VDP before CRA contacts you |
| Received a Notice of Reassessment you disagree with | Post-audit | File T400A objection within 90 days |
CRA processes millions of returns each year. Most taxpayers who receive letters can handle them with organized records and a calm response. The cases that go badly wrong usually involve either ignoring CRA's letters entirely, or attempting to handle a complex audit without professional help. For the TFSA and RRSP side of your tax picture, keeping clean contribution records is the easiest way to avoid a review in the first place.