What Triggers Tax Audits in Canada?

A Backgrounder Article

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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

WHAT'S IN THIS ARTICLE
What Triggers An Audit | Vehicle Expenses | Three CRA Audit Projects

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CRA Headquarters in OttawaAudit selection is driven by risk assessment systems that flag returns for further review

Barrett Tax Law's article titled Twenty Tax Audit Triggers explains it very well ...

"Sometimes a taxpayer is randomly selected for an audit. ... But apart from a random tax audit, the odds of being targeted for an audit are dependent on a variety of risk factors. In short, the odds of being audited depends on who you are, where you are, what you do, what types of expenses you have, and so on. ... And the more risk factors a taxpayer has, the greater the odds of that taxpayer being audited."

The CRA database can compare your business data to others in the industry. Here are three issues that might trigger tax audits in Canada are:

  1. Unreasonable business expense deductions
  2. Underreported income
  3. Rounding numbers to the nearest hundred on your T2125

The best defence to reduce your risk of an audit is to develop the habit of getting organized by saving your supporting records and receipts. Get in the habit to document, document, did I mention document?

Let's look at some known audit triggers ...

1. Vehicle Expenses: A Guaranteed Audit Trigger

Learning about the essential bookkeeping habits for reimbursement will keep your books audit ready. Because the rules for writing-off business use of auto expenses are complicated and very inflexible, CRA auditors will always examine them. So follow the rules closely if you want your deduction to pass a tax audit.

CRA has three distinct sets of rules for vehicles used for business purposes. Choose the one that fits your circumstances to stay CRA compliant. 

T2125 Self-employed car expensesSelf Employed Car Expenses
Employee owned carEmployee Owned Cars
Canadian company owned fleet of careCompany Owned Cars

2. CRA Audit Projects

CRA formally selects audit projects each year, targeting areas where non-compliance is common or where new rules have created gaps. The following are either current or past audit projects (which invites ongoing scrutiny) that directly affect home-based business owners. Each one has its own dedicated page because the rules are detailed enough to warrant a closer look.

CRA mileage log requirements are meticulous!The CRA Is Diligent About Auditing For A Mileage Logbook
Employee using company owned vehicleAn Audit Project Related To Corporate Car Expenses Started In 2019
Seller checking Amazon marketplace app on smartphone representing the growing platform economy and CRA reporting requirements for online income.Why CRA Is Watching Online Income In 2026

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