Why Calgary Businesses Are Facing More CRA Audits in 2025 (and How to Prepare)

Calgary business owners have been noticing an uptick in audit activity by the Canada Revenue Agency (CRA) in 2025. This trend isn’t just anecdotal – it reflects a broader CRA crackdown on tax non-compliance across Canada. In fact, the CRA claims it is “missing out on over $20 billion per year in tax revenue” and has ramped up enforcement accordingly. Audits are up, penalties are harsher, and more businesses (and individuals) are getting those dreaded audit notices. Below, we’ll explore why CRA audits are increasing – particularly for Calgary-based businesses –, and how you can prepare to weather a potential audit.

Why CRA Audits Are Increasing in 2025

Multiple factors are driving the surge in CRA audits in 2025, and many Calgary businesses find themselves affected by these nationwide trends. The CRA has bolstered its resources and sharpened its focus in key areas of non-compliance, resulting in a significant jump in audit and review actions. For example, the agency conducted nearly 96,000 compliance actions in the 2023–24 fiscal year, up from about 62,660 the previous year. This surge is no coincidence; it stems from deliberate strategies and new tools deployed by the CRA. Let’s break down the main reasons:

1. Government Crackdown and More Enforcement Resources:

The federal government has empowered the CRA to crack down harder than ever on tax evasion and aggressive avoidance. Citing a large “tax gap” (unpaid taxes), Budget 2024 and other initiatives have injected funding to increase audit staffing and improve data analytics. “They’re digging deeper and casting a wider net,” as one tax expert observed of the CRA’s bolstered audit efforts. In practical terms, this means more Calgary businesses being audited simply because the CRA now has greater capacity and mandate to root out missing tax revenue. The agency’s departmental plan explicitly prioritizes areas like high-net-worth tax schemes, GST/HST issues, real estate transactions, and the digital economy – all of which can involve Calgary companies or investors. In short, 2025 brings a more assertive CRA with the resources to scrutinize more files than in past years.

2. Focus on High-Risk Industries (Real Estate and Cash Businesses):

Certain industries common in Calgary are under heightened surveillance for potential tax non-compliance. Real estate is a prime example. The CRA has long watched real estate transactions for undeclared capital gains and improper use of the principal residence exemption, but now it’s scrutinizing these more than ever. House flippers, multiple-property sellers, and even landlords (including those using Airbnb or short-term rentals) are facing extra audit attention, especially if they’ve misused the principal residence tax break or failed to report rental income. In one recent period, the CRA completed over 2,270 GST/HST audits on home builders/renovators, assessing $209.4 million in penalties, underscoring how serious they are about real estate compliance.

Calgary’s real estate sector has seen many investors and developers, so local businesses involved in property should be mindful of these trends. Meanwhile, cash-based businesses – think restaurants, pubs, retail shops, auto repair, construction contractors – are another major target. The CRA knows that businesses dealing heavily in cash have a higher risk of underreporting sales or inflating expenses, so auditors are actively flagging books that don’t add up. Many Calgary small businesses in hospitality, trades, and services fit this profile, meaning they may face more audits if their reported earnings seem unusually low for their industry or if they’ve been relying on “cash under the table” sales. The message is clear: sectors traditionally prone to unreported income are under the microscope in 2025.

3. Post-Pandemic Subsidy Audits (CEWS and More):

Another reason Calgary businesses are seeing more audits is the after-effect of COVID-19 relief programs. The CRA is now auditing claims made for pandemic support subsidies, such as the Canada Emergency Wage Subsidy (CEWS), to claw back funds that were improperly claimed. Over 340,000 businesses across Canada (many in Alberta) received CEWS, totalling about $100 billion in aid. The CRA has already denied or adjusted over $450 million in wage subsidy claims after audits, and this audit program is ongoing through 2025. In other words, if your Calgary business accessed wage subsidies or other COVID relief, be prepared for the possibility of a review or audit of those claims. The tax agency has signalled it will “recover as much of it back as possible” from ineligible or mistaken claims. This translates into a higher audit likelihood for businesses that benefited from these programs, especially if any paperwork or eligibility criteria were questionable. Ensuring you have kept all documentation for government aid received is crucial, as CRA auditors in 2025 are actively verifying pandemic-related filings.

4. Crackdown on Aggressive Tax Planning and Offshore Assets:

The CRA in 2025 has a very sharp eye on schemes that it deems overly aggressive or outright evasive. This is particularly relevant if your business or its owners have engaged in complex tax strategies, offshore investments, or elaborate corporate structures to minimize taxes. The tax agency is taking a “much harder stance” on aggressive tax planning and has new tools to find hidden income. For instance, Canada now participates in extensive international data-sharing agreements(over 100 countries under the Common Reporting Standard) – meaning foreign bank accounts, overseas property, or crypto assets that Canadian taxpayers haven’t disclosed can be reported back to the CRA. High-net-worth individuals in Calgary who have assets abroad, or companies using offshore trusts and shell corporations, are at high risk of audits and even prosecutions as the CRA hunts down undeclared foreign income.

Even domestically, techniques like income splitting, “paper losses,” or questionable tax credit claims are under intense scrutiny. The CRA has ramped up the number of tax evasion cases it refers for prosecution, so those caught using elaborate tax shelters or false deductions face not just back taxes and penalties but potential legal action. Calgary businesses should take note: if a tax strategy sounds “too good to be true,” it’s probably on the CRA’s radar. The climate in 2025 is one of zero tolerance for aggressive tax avoidance, and that inevitably means more audits for anyone pushing the envelope on tax rules.

5. Advanced Analytics and AI Driving Audit Selection:

Unlike in years past, audits today are not purely random – technology is heavily influencing who gets audited. The CRA has invested in advanced analytics and artificial intelligence to automatically flag returns that look suspicious. These systems can scan through massive amounts of taxpayer data and spot patterns or anomalies far faster than human auditors. If your company’s tax return has unusual deductions, inconsistent income reporting, or claims that deviate markedly from industry norms, there’s a good chance the CRA’s algorithms will single it out for review. For example, the CRA now cross-checks GST/HST refund claims against other financial records automatically – if the numbers don’t match up, an audit is almost certain. This means Calgary businesses need to be extra careful in 2025 with their bookkeeping and tax filings: even a good-faith mistake could be red-flagged by an unforgiving AI system if it looks abnormal. The era of “flying under the radar” is ending because machine learning models are getting extremely adept at pinpointing fraud and errors in real time.

One notable focus of these tools is the burgeoning digital and crypto space. Cryptocurrency transactions, for instance, are no longer invisible to tax authorities. Exchanges report large transactions to the CRA, and audits of crypto traders have surged as the agency matches trading data to tax returns. So if a Calgary business owner is dealing in Bitcoin or other crypto (or accepting it as payment), they should expect the CRA’s data analytics to notice any undeclared gains. Overall, CRA’s tech-driven approach in 2025 means more businesses being flagged for audit due to detected irregularities – a trend that will only increase going forward.

6. New (Proposed) Audit Powers and Penalties:

Finally, an important development influencing CRA audit activity is a set of expanded audit powers proposed in the federal Budget 2024. While not all are law yet (legislation is pending as of early 2025), these measures indicate a tougher enforcement posture. The proposed rules would let the CRA compel individuals to attend examinations under oath, issue Notices of Non-Compliance with fines up to $25,000 for not fully cooperating, levy automatic penalties (10% of a tax bill) for failing to obey a compliance order, and even suspend normal reassessment time limits during disputes so audits can be kept open longer. In essence, if these powers pass, auditors could demand sworn testimony and penalize uncooperative taxpayers before an audit is even concluded.

Why does this matter now? It creates a more aggressive audit environment, even before the laws are formally in place. CRA auditors are emboldened by the government’s support for stricter measures, and businesses under audit may already feel the pressure to comply quickly or face harsher consequences. Calgary companies should be aware that refusing or delaying responses to an auditor’s requests could become even riskier financially. These looming powers underscore the CRA’s philosophy in 2025: tax compliance is not optional, and pushback will be met with heavy penalties. Even though a parliamentary pause delayed these specific rules, the tax community expects them (or similar provisions) to be enacted once Parliament reconvenes. The prudent course for businesses is to act as if these strict rules are already in effect, meaning full cooperation and thorough preparedness during audits.

How Calgary Businesses Can Prepare for a CRA Audit

Facing a potential CRA audit can be daunting, but Calgary business owners can take proactive steps to minimize their audit risk and be well-prepared if an audit happens. Given the CRA’s intensified scrutiny in 2025, preparation and compliance are your best defences. Here are key strategies to ensure your business is audit-ready:

Keep Meticulous Financial Records:

Well-organized documentation is your greatest ally in an audit. Maintain detailed books, receipts, invoices, bank statements, and payroll records for at least the minimum required years (generally 6–7 years in Canada). Everything you claim on your tax returns – revenues, expenses, deductions, GST/HST credits, etc. – should be backed by proper documents. If you’re in a cash-heavy business, make a habit of recording every sale and expense, even small cash transactions, ideally with point-of-sale records or receipts.

The CRA often asks for proof of income and expenses; having thorough records ready can satisfy auditors quickly and avoid penalties. In the words of one CRA veteran, “detailed documentation proves your case if audited” – so file those records diligently instead of scrambling when the audit letter arrives.

Report ALL Income (No Off-the-Books Sales):

It can be tempting for small businesses to omit cash earnings or “forget” side income, but in 2025, the CRA is highly adept at detecting undeclared revenue. Report all forms of income on your tax filings – from cash sales at your Calgary café to online gig earnings or rental income from an Airbnb suite.

The CRA’s cross-checks (including bank deposits vs. reported income, and lifestyle audits comparing personal spending to declared income) will catch discrepancies in many cases. Remember that even small income streams count. The gig economy, for example, is a focus area now – if you drive for a rideshare or sell products online as a side business, that income must be declared.

Honest, complete reporting not only keeps you compliant but also spares you hefty fines if an auditor discovers unreported income later. It’s far better to pay taxes on that extra $5,000 now than to pay penalties and interest on it after an audit.

File On Time and Correctly:

Missing tax filing deadlines or filing inaccurately is one of the simplest audit triggers. Late filings, especially habitual ones, raise red flags in the CRA’s system. Always file your business tax returns (and GST/HST returns) on time, even if you can’t pay the full amount owing right away – you can work out payment arrangements, but at least you won’t be flagged for lateness.

Double-check calculations or have an accountant review your returns to ensure accuracy. An incomplete or error-riddled return can invite further scrutiny or requests for information. Filing on time and correctly signals to CRA that you’re organized and compliant, reducing the chance they’ll feel the need to dig deeper. It also prevents the automatic penalties and interest that come with late or corrected filings.

Be Cautious and Truthful with Deductions & Credits:

Review all deductions and tax credit claims to ensure they are legitimate and reasonable. Avoid “stretching” expenses to cover personal costs or inflating business write-offs beyond what the documentation supports. The CRA’s new analytics are “flagging excessive or inconsistent claims” more efficiently than ever.

For instance, if your Calgary marketing firm claims vastly higher meal & entertainment expenses than what similar businesses typically would, an AI system might single you out. Only claim expenses that are truly business-related and have receipts. Similarly, be careful with input tax credit claims on GST/HST – ensure you have valid invoices with supplier tax numbers, as missing or invalid GST invoices are a common audit issue.

If you’re unsure about a deduction (home office, vehicle use, etc.), consult a tax professional rather than risk an aggressive claim. It’s better to err on the side of caution than to face an auditor who disallows a chunk of your expenses and levies a penalty for “gross negligence” because they believe you intentionally overstated things.

Comply Fully with GST/HST Rules:

Sales tax is a hot area for audits, so make sure your business is following all GST/HST obligations. This includes charging the correct GST/HST on your sales, filing your returns on schedule, and remitting the tax collected. Also, be aware of specific rules if they apply – for example, construction or real estate businesses must self-assess GST/HST on certain projects (e.g., the HST New Home “builder” rules if you build and then rent out a property).

The CRA has been intensely auditing these scenarios, as noted earlier. Calgary builders and renovators should ensure they understand when GST/HST applies to their projects to avoid unexpected tax bills. Always keep documentation for your GST/HST filings, such as sales records and purchase invoices for which you claimed input credits. In an audit, CRA agents will often request all your supporting documents for a period to verify that you charged and remitted tax properly. Being able to promptly produce those records – invoices, receipts, tax worksheets – will make the audit process much smoother and demonstrate your compliance.

Review COVID-19 Relief Claims and Eligibility:

If your business received any pandemic-era support (like CEWS, Canada Emergency Rent Subsidy, or the small business CEBA loan forgiveness), review those claims now to ensure they were calculated correctly and that you retained the required supporting evidence. As mentioned, the CRA is auditing COVID subsidy claims through 2025 to recoup incorrect payouts.

Make sure you have documentation of the revenue drop percentages you attested to for each CEWS period, the employee payroll records, or rent agreements that were the basis of your claims. If you spot a mistake in a past claim, consult a tax advisor on how to address it – it’s often better to proactively disclose and fix an error than to have the CRA discover it in an audit.

Being prepared for a CEWS audit means having organized files of all your applications, calculations, and correspondence for that program. By doing a self-audit on your COVID relief claims, you’ll be ready to answer CRA questions and demonstrate that your Calgary business was indeed eligible for every dollar received.

Stay Current on Tax Law Changes & CRA Guidance:

Tax rules aren’t static. New legislation (like the proposed audit powers) or rule changes (e.g., adjustments to allowable expenses, new reporting requirements) can arise each year. Stay informed about federal and Alberta tax changes that could affect your business. For instance, if new reporting rules for digital platform income or foreign asset disclosures come into effect, ensure you comply promptly. The CRA often announces its focus areas and offers educational outreach (such as the Assisted Compliance Program, which contacts businesses in certain sectors to encourage self-correction).

Paying attention to these signals can help you adjust your tax practices before you get audited. Many Calgary entrepreneurs find it valuable to work with a professional accountant or tax advisor who keeps them apprised of changes, as one wealth advisor noted, knowing the latest rules and your own financial profile is key to mitigating audit risk. In short, knowledge is power when it comes to tax compliance. Don’t let outdated practices expose you to an audit in 2025.

Consult Professionals and Do a “Mock Audit”:

Given the complex and evolving nature of tax compliance, consider getting professional advice to review your books and tax filings. A CPA or tax consultant in Calgary can identify potential audit red flags specific to your business and help implement strategies to address them (for example, correcting a revenue classification or improving record-keeping for expenses).

Some businesses even opt for a pre-emptive audit readiness check, where an accountant goes through an exercise similar to a CRA audit – checking that all income is reported, verifying that expense claims have documentation, etc. This can uncover issues before the taxman does. While it’s an added cost, professional guidance can save you money and stress in the long run by preventing costly audit adjustments.

At the very least, have an expert you can call if an audit letter arrives. They can coach you on how to respond and even interface with CRA auditors on your behalf. Remember, an accountant or tax lawyer deals with audits regularly and knows how to navigate the process far better than a busy business owner might on their own. Don’t hesitate to lean on that expertise.

Cooperate – But Also Know Your Rights:

If you are selected for an audit, the way you handle it can make a big difference in the outcome. Cooperate professionally and promptly with the CRA’s requests for information. Auditors will typically ask for a list of documents or clarifications; provide them in an organized manner and meet the deadlines given. Even if the audit notice is nerve-wracking, try to stay calm and communicative. As one tax expert noted, while the auditor-taxpayer relationship can feel adversarial, “fostering a spirit of cooperation can lead to more constructive conversations and quicker resolutions,”.

Showing that you have nothing to hide – by being transparent and helpful – can sometimes resolve audit questions without further escalation. However, cooperating doesn’t mean you forfeit your rights. You are entitled to professional representation, to ask questions about what the auditors are looking for, and to appeal or object to an assessment if you truly disagree. Provide all information the law obligates you to (under our self-assessing tax system, you must furnish what the CRA reasonably requests), but you don’t have to volunteer analysis that wasn’t asked for or admit to assumptions that haven’t been established.

If an auditor makes a finding you think is wrong, you can later challenge it through the formal objection process. In summary, be civil, timely, and thorough with your responses during an audit – it builds trust with the auditor – but also consult your tax advisor about any points of contention. Most audits close with either no change or some agreed adjustments; a cooperative approach helps get to that finish line faster, with less stress.

By understanding why CRA audits are on the rise and taking these preparation steps, Calgary businesses can significantly reduce their audit risks and handle any reviews with confidence. The tax landscape in 2025 may feel challenging – the CRA is more vigilant and equipped with new tools – but the core principle remains: if your business stays compliant, keeps good records, and deals with the CRA in good faith, an audit should be a manageable process. Going through an audit can even strengthen your future practices by highlighting areas for improvement. The key is not to be caught off guard.

Calgary entrepreneurs have weathered many economic ups and downs; with the right preparation, you can weather the CRA’s increased scrutiny as well. Stay informed, stay organized, and don’t hesitate to seek expert help. In the end, compliance pays off – not only to avoid penalties, but to sleep better at night knowing your business finances can pass muster if the taxman comes knocking