As we move deeper into 2025, one pressing question resounds among many Canadian businesses and individuals: Why is the Canada Revenue Agency increasing audits this year? The reason lies at the juncture of regulatory change, technological advancement, and changing economic realities. For any business operating in Canada, or for individuals with complex tax situations, understanding where the CRA is focusing its audit attention can turn a source of anxiety into a proactive compliance strategy.
1. What is changing at the CRA?
The CRA is clearly signalling a shift in tone and tenor within its compliance approach. In its 2025-26 Departmental Plan, the Agency emphasizes an increased digital transformation, stronger data analytics, and better targeted compliance, as opposed to purely random audits.
This means that, practically speaking, the CRA is moving away from the “we’ll audit whoever we pick randomly” model and is developing smarter tools that flag the higher-risk filings. Analysts note that the Canada Revenue Agency, in 2025, has increased its audit activity, particularly among small and medium-sized businesses in sectors such as construction, hospitality, and the digital economy.
What drives these shifts?
CRA’s need to protect the tax base and ensure that the system is fair.
Advances in data sharing, artificial intelligence, and analytics that enable the Agency to find anomalies and patterns more effectively.
Legislative changes enhancing CRA’s audit and compliance powers.
The takeaway for taxpayers is clear: The risk of audit is more targeted, more data-driven, and less avoidable simply by flying under a low radar.
2. Key areas of audit focus in 2025
Following are some of the major audit priorities for 2025 spots you should pay particular attention to:
a) Aggressive tax planning and complex structures
The CRA is reviewing those who use holding companies, trusts, income-splitting arrangements, and sophisticated international structures mainly for tax reduction. Even though the structures are legal, if their dominant purpose seems to be tax avoidance rather than business substance, the Agency may intervene.
b) GST/HST compliance and digital economy
E-commerce, cross-border services, online platforms, and digital products are very high on the CRA’s radar. Claims of input tax credits or failing to charge GST/HST correctly invite attention.
c) Underground economy / cash-based businesses
Sectors with high cash transactions remain under-examined territory for the CRA: construction, hospitality, personal services. The risk of unreported income draws targeted audits.
d) Cross-border transactions and transfer pricing
For businesses with international ties, the CRA is checking whether inter-company charges respect market value, whether transfer pricing documentation exists, and if reporting obligations, such as Country-by-Country reporting, are met.
e) Employer payroll compliance / worker classification
With remote and hybrid working increasingly the norm, the CRA is also checking that workers are being properly classified, that taxable benefits are being dealt with appropriately, and payroll filings are accurate.
f) Real-estate transactions
Other focus areas include property flipping without appropriate reporting, inappropriate use of the principal residence exemption, and purchases/sales by non-residents.
3. Why now? The reasoning behind the timing
Why is 2025 a watershed year for audit focus? Several forces converge:
Smarter audits through technology
The CRA is using advanced data analytics, AI and machine-learning tools that flag unusual patterns in taxpayer behaviour, such as large deductions, inconsistent income, high fluctuations or mismatches in GST/HST filings.
Upgrading legislative and enforcement powers
In 2025, changes to CRA’s powers were announced: the ability to compel oral statements under oath, impose daily penalties for non-cooperation (e.g., Notices of Non-Compliance up to $25,000) and apply compliance orders with penalties of up to 10 % of tax owing.
Economic and structural changes
The rise of the digital economy, globalised trade, cross-border services and the gig economy have brought about new compliance risks and reporting challenges. The CRA is responding accordingly.
A push for fairness and integrity
CRA’s strategy emphasizes the importance of taxpayer trust and fairness; those that comply will not be disadvantaged by those that do not. The audits selected are part of maintaining that fairness.
4. Alerts and red flags that may prompt an audit
While CRA uses a risk-based model, there are a number of behaviours that make you more likely to be selected. Watch for:
- Large or unexplained fluctuations in income or deductions from one year to the next.
- GST/HST filings that do not reconcile to reported sales or income.
- Use of complex related-party transactions, offshore entities, numbered companies, or structures that seem to lack commercial substance.
- Business expenses or ITC claims that are unusually large or inconsistent with the norms of the industry.
- Operations with heavy cash, limited documentation, or significant discrepancies as compared to industry benchmarks.
- Payroll classification issues (contractor vs employee), or omission of taxable benefits.
- Property deals that seem to be business-income rather than capital gains, or abuse of the rules regarding principal residence.
These flags are not guarantees of an audit, but they raise your visibility to the CRA’s systems.
5. Practical steps to reduce your audit risk
While you can never remove all audit risk, you can substantially improve your position with prudent steps:
1. Keep thorough, clear documentation
Keep transaction records, contracts, invoices, payroll records, GST/HST records, real-estate records and inter-company agreements. Retain them for at least six years, or longer if complex.
2. Align your business structure with commercial reality
If you use holding companies, trusts, related-party agreements, or international entities, make sure there is a real business purpose-not just tax avoidance. Document the commercial rationale.
3. Review GST/HST compliance
Pay the correct tax, claim only eligible ITCs, and be registered when required-in particular, for digital services and cross-border sales.
4. Monitor cash-based operations vigilantly
Employ reliable accounting systems, reconcile accounts regularly, and ensure reportable revenues capture all streams, both cash, online, and offline.
5. Review payroll and worker classification
Ensure workers are correctly classified, taxable benefits are appropriately reported, and filing obligations are met in a timely manner.
6. Real-estate transaction due diligence
If you flip property or hold rental property, keep clear records of purchase costs, improvements, sale proceeds and your intention – investment or principal residence.
7. Respond promptly to CRA enquiries
Where CRA embarks on a review or audit, it is always advisable to co-operate. Delays invite a Notice of Non-Compliance, penalties, or even further exposure.
8. Seek professional advice proactively
Especially if your tax situation involves cross-border dealings, large investments, trusts, real-estate, or complex structures, a tax professional who knows about the CRA Audit risk will help you align your strategy.
6. What to do if you are under audit
Here are some practical tips if you find yourself selected by the CRA:
- Remain calm and organized. Approach the audit like a process, not a judgment.
- Supply requested records promptly and in an organized fashion.
- Do not hide or delay information, as it could worsen your position, especially under the new compliance powers.
- Understand what is being examined and ask for clarity on scope. If you disagree with any finding, please note that you have recourse through the Notice of Objection process, generally within 90 days.
- Legal or tax-advisor assistance should be considered when issues are complex, such as international arrangements, large reassessments, and compliance orders.
- Maintain good communication-document your responses, keep a timeline, and track what you provide to the CRA.
7. Why this matters for your business or personal tax situation
The heightened audit focus matters because it raises the stakes. For small and midsize businesses, an audit can not only impose additional tax, interest and penalties but also divert time, money and resources away from operations. For individuals, it could mean reassessments, surprise tax bills or legal risk. It’s not just about avoiding an audit; it’s about aligning with the broader expectation of transparency and fairness. If you are operating in Canada with cross-border elements, digital services, real estate holdings, or complex structures, being proactive has real value.
In 2025, CRA is sharpening its focus. Audit selection is increasingly smart, driven by analytics, enabled by new powers and shaped by an evolving economy. This means that for businesses and individuals, there’s no room for complacency. Whether you are running a modest local business or managing a multi-entity structure, audit readiness and sound compliance practices are more relevant than ever.
At The ACCTax Co., our view is: the best defence is a good offence. Be consistently compliant, keep clean records, examine your structures for commercial substance, address GST/HST and payroll issues, and consider professional advice when things get complex. You’re not waiting for an audit; you’re staying ahead of one. Stay informed. Stay organized. And build from this moment a tax posture that supports your growth, confidence, and peace of mind.
