Most Canadians assume honest filing means no audit. But the CRA uses automated risk-scoring that flags specific patterns — and many taxpayers trigger these without realizing it.
1. Claiming 100% Business Use of a Vehicle
The CRA is highly skeptical. Without an airtight mileage log covering every trip for the full year, the deduction gets denied. A realistic 80–85% with proper documentation is far more defensible.
2. Home Office Over 50% of Your Home
Claiming more than half your home as a workspace raises immediate questions. A reasonable, well-documented percentage (typically 10–25%) is much easier to defend.
3. Consistent Business Losses
Year-after-year losses raise a fundamental question: is this a business or a hobby? The CRA expects a reasonable expectation of profit.
4. Expenses Far Above Industry Norms
The CRA benchmarks expense ratios against industry averages. If yours are dramatically higher, expect a review.
5. Lifestyle Inconsistency
The CRA’s net worth audit compares reported income against apparent lifestyle. Social media is increasingly used as a data source.
6. Large Charitable Donations
Donations disproportionately large relative to income — especially from tax shelter schemes — attract CRA attention.
7. Cash-Intensive Businesses
Restaurants, contractors, salons are perennial targets. The CRA uses markup analysis and bank deposit comparisons to estimate unreported revenue.
8. T1135 Foreign Income
Foreign property exceeding $100,000 CAD requires a T1135. Failure carries penalties up to $2,500 per year.
How to Protect Yourself
- Keep a contemporaneous mileage log
- Document all deductions thoroughly
- Be honest with percentages
- Work with a CPA from the start
Want to make sure your return is audit-ready? CMP Accounting can help.