Canada's Tax System Runs On Self-Assessment

A Backgrounder Article

Logo by Mike

By L.Kenway BComm CPB Retired
This is the year you get all your ducks in a row! Start by starting ... and keep it simple. Consistency beats perfection.

Published April 23, 2026

RETURN TO >> Understanding The Audit Process
NEXT ARTICLE >> What Triggers An Audit?
BACK TO >> The Concierge Desk

Home Based Self-Employed Canadian working on their T2125 tax formSelf-employed Canadians are responsible for reporting their own income

Tax audits and CRA reviews can have serious financial consequences if you ignore notices, keep weak records, or assume a mistake will go unnoticed. This page explains how the CRA review and audit process works, what the different notices mean, and why getting organized early matters.

Canada's tax system is built on self-assessment and self-reporting. That means you are responsible for reporting your income correctly, claiming only what you can support, and keeping records that back up your return. Because the system relies on public compliance, the Canada Revenue Agency (CRA) carries out reviews and audits to check that tax law is being followed. It is not a personal attack.

One hard truth many small business owners do not realize until it is too late is this ... in tax matters, ignorance of the rules is generally not a defence. If the CRA reviews your return or starts an audit, you may be asked to support what you filed with documents, receipts, logs, and records. If you cannot support your claim, adjustments, interest, and penalties can follow.

That does not mean every CRA letter is an audit. Some contacts are part of the normal review process. But every notice should be taken seriously and dealt with promptly.

If you are self-employed, the risk is often higher than it is for an employee because you are responsible for managing your own tax compliance. Depending on your situation, CRA scrutiny may involve an income tax review, office audit, field audit, GST/HST review, or payroll review.

Your best protection is simple but not optional ... accurate records, organized documents, filing reports on time, not spending monies held in trust, and prompt responses to CRA.

Backgrounder Library

Back to top