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Canada Tax Audit & Appeals Guide (CRA Audit, Objection, Tax Court)

the CRA audit and the appeals process in Canada. The CRA audit (the "tax audit" — the "desk audit" at the CRA office or the "field audit" at the taxpayer's premises) — the CRA reviews the taxpayer's books and records to verify the accuracy of the tax return. The Notice of Assessment (NOA) — the initial assessment issued by the CRA after the filing of the return (the "CRA's assessment" — the "tax payable" or the "refund"). The Notice of Reassessment — the CRA reassesses the taxpayer within the normal reassessment period of 3 years (the "3-year reassessment limit") or the extended reassessment period of 4 years (for the "misrepresentation" or the "negligence"). The Notice of Objection — the taxpayer's formal challenge to the CRA's assessment (the Form T400A, the "Objection to the Assessment" — the 90-day deadline from the date of the NOA or the Notice of Reassessment). The Tax Court of Canada — the "appeal to the Tax Court" after the CRA's objection decision. The informal procedure (the "fast and the inexpensive" process for the disputes under $25,000) and the general procedure (the "formal" process for the disputes above $25,000). The Voluntary Disclosures Program (VDP) — the "no-penalty" treatment for the taxpayers who voluntarily correct the incomplete or the incorrect information. The Taxpayer Relief (the "CRA relief" — the "waiver of the interest and the penalties" — the Form RC4288, the "Request for the Taxpayer Relief").

CRA Audit

• Desk audit: The CRA reviews the tax return at the CRA office (the "desk audit" — the "CRA requests the documents by mail"). The desk audit is the "limited" audit (the "specific items" — the medical expenses, the charitable donations, the moving expenses, the rental income).
• Field audit: The CRA auditor visits the taxpayer's business premises or the home (the "field audit" — the "on-site audit"). The field audit is the "comprehensive" audit (the "full books and records review"). The CRA auditor has the "statutory power" to enter the premises and examine the records.
• Books and records: The taxpayer must keep the "books and records" for 6 years from the end of the tax year (the "6-year retention rule"). The "books and records" include the receipts, the invoices, the bank statements, the ledger, the journals, the contracts, and the correspondence.
• CRA audit notice: The CRA sends the "audit notice" (the "CRA audit letter") — the "notice of the audit" — the "audit period", the "audit scope", and the "required documents". The taxpayer has the right to the "representation" (the "authorized representative" — the accountant or the lawyer).

Notice of Objection

• Form T400A: The "Objection to the Assessment" — the taxpayer files the Form T400A within 90 days of the date of the NOA or the Notice of Reassessment. The T400A must state the "reasons for the objection" and the "facts and the law" that support the taxpayer's position.
• Objection deadline: The 90-day deadline is the "strict deadline" — the CRA may NOT extend the 90-day deadline (the "late objection" is NOT accepted). The taxpayer can appeal the "late-filed objection" to the Tax Court if the CRA refuses to extend the deadline.
• CRA's response: The CRA's "Appeals Branch" reviews the objection and issues the "Notice of Decision" (the "confirmation of the assessment", the "vacation of the assessment", the "variation of the assessment", or the "reassessment").

Tax Court of Canada

• Informal procedure: The "fast and the inexpensive" process for the disputes under $25,000 (the "informal procedure" — the "self-represented" taxpayers). The Tax Court judge hears the case without the "formal pleadings" (the "simple and the quick" process). The "no costs" rule (the "each party bears the own costs") — the informal procedure is the "low-risk" appeal.
• General procedure: The "formal" process for the disputes above $25,000 (the "general procedure" — the "formal pleadings" and the "discovery"). The "costs" (the "loser pays the winner's costs") — the general procedure is the "higher-risk" appeal (the "taxpayer may pay the CRA's legal costs").
• Appeal deadline: The taxpayer must appeal to the Tax Court within 90 days of the CRA's "Notice of Decision" (the "appeal period" — the "90-day appeal deadline").

Voluntary Disclosures & Taxpayer Relief

• VDP (Voluntary Disclosures Program): The taxpayer can voluntarily disclose the incomplete or the incorrect information. The VDP grants the "no-penalty" treatment (the "penalty waiver"). The taxpayer must show the "voluntary" disclosure (the taxpayer initiates the disclosure before the CRA's audit), the "complete" disclosure (the "full and the complete" information), and the "potential penalty" (the "avoidance of the penalty").
• Taxpayer relief (Form RC4288): The taxpayer can request the "waiver of the interest and the penalties" under the "Taxpayer Relief Provisions" (the "CRA relief" — the Form RC4288). The CRA considers the "circumstances beyond the taxpayer's control" (the natural disasters, the serious illness, the death in the family), the "CRA error" (the CRA's incorrect advice), and the "inability to pay" (the "financial hardship").

For the CRA debt collection and the payment plans, see our Tax Debt Collection Guide →. For the CRA scams and the identity protection, see our CRA Scams & Identity Protection Guide →.