Canada: Audit

Employer Health Tax Ontario (EHT) is a critical provincial payroll tax that continues to generate significant tax audit disputes and litigation risk for Ontario employers. As businesses grow, restructure, or adopt more complex payroll and corporate arrangements, exposure to an Employer Health Tax reassessment increases materially.

CRA real estate tax audits have entered a new phase of sophistication, with the Agency increasingly relying on third-party data sources — most notably MLS listings — to identify potential non-compliance.

In 2251102 Ontario Inc. v. The King, 2026 TCC 61, the Tax Court of Canada considered whether a taxpayer can successfully challenge a tax reassessment based on a net worth analysis where the CRA has relied on indirect methods due to inadequate books and records.

The Canada Revenue Agency (CRA) is increasingly adopting advanced digital tools and artificial intelligence (AI) analytics to enhance tax compliance and enforcement.

From 2020 to 2025, the Canada Revenue Agency (CRA) has significantly increased the use of administrative penalties as a core enforcement tool.

The Canada Revenue Agency (CRA) has expansive powers to enforce compliance with the Income Tax Act, notably through Section 231.2, which allows the agency to demand documents or information from individuals or entities during a tax audit.

Subsection 231.1(1) of the Income Tax Act (ITA) outlines the powers of CRA during a tax audit or examination. Before the legislative changes in 2022, the text read as follows...

Private businesses - those with annual revenues typically ranging from $10 million to $250 million - form the backbone of Canada's private sector, contributing significantly to economic growth.

As part of Budget 2024, the Department of Finance Canada (Finance) introduced proposed legislation to significantly enhance the Canada Revenue Agency's (CRA) audit powers (see previous article here summarizing the initial proposed changes).