Are You Filing Your Taxes Incorrectly Without Knowing It? 7 Red Flags That Could Trigger a CRA Audit

At TiKiTax, we help you recognize these early warning signs and fix them before they become costly issues — so you can stay focused on growing your business with peace of mind.

1. Revenue Discrepancies

The CRA cross-checks income across several sources — T4s, bank records, GST/HST filings, and more. If your reported income is lower than what’s submitted by employers or banks, your return is flagged.

Solution:

- Report all income sources accurately.

- Review year-over-year figures for consistency.

2. Outliers Compared to Industry Norms

If your reported income or expenses are far above or below others in your industry — such as a nail salon claiming five times more in marketing costs — the CRA may raise an eyebrow.

Solution:

- Benchmark your business against industry averages.

- Be ready to explain unusual variances with supporting documentation.

3. Excessive or Unreasonable Deductions

Deductions like meals & entertainment, travel, or vehicle expenses are commonly scrutinized. Overclaiming (e.g. 100% of vehicle use or meals) is a clear red flag.

Solution:

- Follow CRA’s limits (e.g. only 50% of meal costs can be claimed).

- Keep all receipts and a detailed logbook for vehicle usage.

4. Overclaiming Home Office Expenses

Claiming that 50% of your home is used for business — when the CRA typically allows only legitimate areas exclusively used for work — can put your return under review.

Solution:

- Calculate the actual square footage used exclusively for your business.

- Retain supporting documents like utility bills, floorplans, and photos.

5. Claiming 100% Business Use of a Personal Vehicle

Using your car for errands, school runs, or vacations but claiming full business use is a common audit trigger.

Solution:

- Keep a precise vehicle logbook: date, kilometers, purpose.

- Only claim the portion of use directly related to your business.

6. Consecutive Business Losses

If your business shows losses year after year, the CRA might question whether you’re operating a legitimate business or just a hobby.

Solution:

- Maintain a clear business plan and forecast.

- If losses are legitimate (e.g. startup phase, pandemic), document your recovery plan and explanations.

7. Unusually Large Charitable Donations

If you donate a large amount relative to your income or business profits, the CRA may verify the legitimacy of the organization and donation.

Solution:

- Donate only to CRA-registered charities.

- Keep official receipts and supporting records.

CRA Audits — Know What You’re Up Against

CRA selects returns for audits based on red flags, statistical anomalies, and sometimes even random selection.

Audits can be conducted remotely, at your office, or in person — and may stretch over months if your records are incomplete.

If you disagree with the results, you have the right to appeal within a specified timeframe.

Audit-Proof Your Business — A Checklist from TiKiTax:

✅ Use accounting software (e.g. QuickBooks, Xero) to track all income and expenses accurately

✅ Store receipts, vehicle logbooks, and home office evidence for at least 6 years

✅ Avoid rounding — use precise numbers and claim only eligible amounts

✅ Compare your numbers with industry benchmarks

✅ Keep a business plan if reporting losses

✅ Donate only to CRA-approved charities and keep all donation receipts

✅ Be prepared to respond to CRA inquiries with accuracy and clarity

Final Thoughts

No one wants to deal with the CRA — but with clean, transparent bookkeeping and a proper audit-defense strategy, you can drastically lower your risks.

At TiKiTax, we support you with:

- Professional bookkeeping

- Full tax return reviews to avoid CRA flags

- Audit support and representation if needed

👉 Book your free consultation today — let us review your records, optimize your taxes, and protect you from unnecessary risks.