CRA review vs. CRA audit: what's the difference?

A CRA review checks one or two specific items on your tax return. It usually starts with a letter asking for receipts or other documents. A CRA audit goes further: an auditor examines your books and records to confirm you're meeting your tax obligations, and it can run for months. Both come with deadlines and both can end with the CRA changing your return, so the first job is working out which one you've got.

What a CRA review looks like

The CRA reviews returns to make sure amounts are "reported correctly and that they are properly supported." It runs several review programs. The ones people run into most often:

• Pre-assessment reviews happen before your notice of assessment is issued.
• Processing reviews happen after it.
• The matching program compares your return with information from third parties such as employers and banks.

A review letter usually asks for something narrow: the receipts behind a deduction, proof you qualify for a credit, an explanation for a slip that doesn't match. The CRA asks you to reply within the time frame in the letter, include the reference number from the top right corner, and send the documents it asked for. If a document isn't available, it asks for a written explanation or a phone call instead. And if you need more time, call the number on the letter before the deadline, not after it.

What a CRA audit looks like

An audit is a closer look. In the CRA's words, the auditor "closely examines the books and records" of the taxpayer. Files are picked through a risk assessment that weighs factors such as how likely a return is to contain errors.

The auditor contacts you by mail, phone or both to set a date, time and place. On-site audits normally happen at your home, your place of business or your representative's office. Otherwise the audit happens at a CRA office. How long it takes depends on the state of your records, how wide the audit is, whether records are missing and whether other CRA specialists get involved.

If the auditor decides your return should change, you get a proposal letter explaining why, and you have 30 days to agree or disagree. We'd call those 30 days the most important part of the whole audit. It's the last point where a clear, documented response can change the outcome before a reassessment is issued.

The main differences

• Scope: a review checks specific items. An audit examines your books and records more broadly.
• How it starts: a review usually starts with a letter asking for documents. An audit starts with an auditor contacting you to arrange it.
• Where it happens: reviews are handled by mail or online upload. Audits happen on-site or at a CRA office.
• The deadline to watch: the date in the review letter, or the 30 days you get to respond to an audit proposal letter.

If you disagree with the result

Either one can end with a notice of reassessment. If you think it's wrong, you can file a notice of objection. The deadline is generally 90 days after the CRA sends the notice, and it's strict. Don't let it slide while you gather paperwork.

What to do when a CRA letter arrives

1. Work out whether it's a review letter or the start of an audit, and write the deadline down.
2. Read exactly what's being asked. Answer that completely, and don't pad the reply with material nobody asked for.
3. Gather the documents and keep a copy of everything you send.
4. If you need more time, ask before the deadline.
5. Decide who will deal with the CRA. You can authorize a representative, such as your accountant, to handle the file for you.

Received a CRA notice? Talk to us before you reply. Elliott & Lee helps businesses and individuals respond to CRA reviews, audits and reassessments, from offices in Penticton and Vancouver. Send us the complete notice, and in a free 30-minute review we'll tell you what it covers and how we'd respond. Contact us

Related: Do you need an accountant or a tax lawyer for a CRA audit?

Sources

• Canada Revenue Agency, Types of review
• Canada Revenue Agency, Responding to us
• Canada Revenue Agency, What you should know about audits (RC4188)
• Canada Revenue Agency, Authorize a representative
• Income Tax Act, section 165 (objections)

This article is general information, not legal or tax advice. Tax rules and CRA practice change, so talk to an adviser about your own situation.