24 February 2026

CRA Audit Changes in 2025–2026: Protect Your Business

The CRA audit changes 2025 2026 period brings significantly enhanced enforcement powers from Budget 2024 and a major overhaul of the Voluntary Disclosures Program (VDP) effective October 1, 2025. New compliance orders, notices of non-compliance with penalties up to $25,000, and compulsory interview powers mean more scrutiny for businesses and individuals. Understanding these changes—and how the expanded VDP can help—is critical to reducing your audit risk and protecting your business.

Why These Changes Matter

The CRA audit changes 2025 2026 reflect a shift toward stronger enforcement. Budget 2024 introduced compliance order penalties of up to 10% of aggregate tax payable per affected year (when tax owed exceeds $50,000), and notices of non-compliance with penalties of $50 per day up to $25,000. At the same time, the VDP was expanded effective October 1, 2025—prompted applicants now qualify for relief (25% interest relief, up to 100% penalty relief), and unprompted applicants get 75% interest relief plus full penalty relief. Proactive compliance and early disclosure are more important than ever.

New CRA Audit Powers: Budget 2024

The CRA audit changes 2025 2026 stem from Budget 2024, which granted the CRA significantly expanded audit and compliance tools:

Compliance Order Penalty

10% of tax payable

Trigger: Failure to comply with a Federal Court–issued compliance order.

Scope: 10% of aggregate tax payable for each taxation year subject to the order. Applies only when tax owed for at least one affected year exceeds $50,000.

Example: $100,000 tax payable over 2 years = potential penalty of $20,000

Notice of Non-Compliance (NoNC)

$50/day up to $25,000

Trigger: Failure to provide requested information or documents during an audit.

Scope: Penalty of $50 per day, maximum $25,000. While outstanding, the normal reassessment period for affected years is extended.

Example: 100 days of non-compliance = $5,000 penalty; 500 days = $25,000 max

Compulsory Interviews

Under oath or affirmation

Trigger: CRA can compel taxpayers to attend interviews and provide written statements under oath or affirmation.

Scope: No material change in 2025, but these powers remain in place and complement the new penalty regime.

Impact: Non-cooperation can escalate to compliance orders and penalties.

Important: Respond promptly and fully to CRA information requests. Delays or incomplete responses can trigger a Notice of Non-Compliance and daily penalties. If you have concerns about solicitor-client privilege or the reasonableness of a request, seek professional advice before refusing.

Voluntary Disclosures Program: Expanded Access (Oct 1, 2025)

Effective October 1, 2025, the CRA overhauled the Voluntary Disclosures Program to make it more accessible while maintaining integrity:

VDP Relief Tiers

Partial Relief (Prompted)

Who qualifies: Applicants who were prompted by CRA (e.g., education letter about unreported income or ineligible expenses).

Interest relief 25%

Penalty relief Up to 100%

Previously, prompted applicants were generally not eligible for VDP.

General Relief (Unprompted)

Who qualifies: Applicants who voluntarily come forward without prior CRA prompting.

Interest relief 75%

Penalty relief 100%

Best outcome: come forward before CRA contacts you.

Documents Required (Simplified)

Issue Type	Years to Include
GST/HST	Most recent 4 years
Canadian-sourced income or assets	Most recent 6 years
Foreign-sourced income or assets	Most recent 10 years

Note: Years with no errors or omissions do not need to be included. CRA may request additional documents for periods beyond these timeframes.

Restrictions remain: VDP is still not available to taxpayers under audit or investigation, or those who were egregiously non-compliant.

How to Reduce Your CRA Audit Risk

Given the CRA audit changes 2025 2026, proactive compliance significantly reduces your risk of audits and penalties:

Risk Reduction Tips

Respond promptly to CRA requests: Missing deadlines can trigger a Notice of Non-Compliance. Set calendar reminders and gather documents as soon as you receive a request.

Maintain accurate records: Keep organized books, receipts, and supporting documents for at least 6 years for income tax, 4 years for GST/HST, and 10 years for foreign assets.

Disclose proactively via VDP: If you discover unreported income, missed filings, or errors, consider the VDP before CRA contacts you. Unprompted applications receive 75% interest relief and 100% penalty relief.

Get professional help during audits: A tax professional can manage communications, ensure complete responses, and protect your interests while reducing the risk of escalation.

File and pay on time: Late filings and payments increase scrutiny. Consistent compliance reduces the likelihood of audit selection.

Common Audit Triggers

Understanding what attracts CRA attention helps you address risks before an audit:

Unreported Income

CRA matches T4s, T5s, and other information slips to returns. Discrepancies trigger review.

Large or Unusual Deductions

Home office, meals, travel, and vehicle expenses that exceed norms draw scrutiny.

Foreign Income & Assets

Unreported foreign income, T1134/T1135 filings, or cryptocurrency can trigger audits.

Cash-Intensive or High-Risk Sectors

Restaurants, construction, and retail face increased audit focus.

Frequently Asked Questions

What is a Notice of Non-Compliance (NoNC)?

A Notice of Non-Compliance is issued by CRA when a taxpayer fails to provide requested information or documents during an audit. It carries a penalty of $50 per day, up to a maximum of $25,000. While the NoNC is outstanding, the normal reassessment period for affected tax years is extended. You can request CRA review and seek judicial review at Federal Court if deemed unreasonable.

Can I still use the VDP if CRA sent me an education letter?

Yes. Under the updated VDP (effective October 1, 2025), taxpayers who were prompted by CRA communications—such as education letters about unreported income or ineligible expenses—are now eligible for the program. You would receive partial relief: 25% interest relief and up to 100% penalty relief. This is a significant change from the previous rules, which often excluded prompted applicants.

How much could I pay in compliance order penalties?

The compliance order penalty is 10% of the aggregate tax payable for each taxation year subject to the order. It applies only when tax owed for at least one affected year exceeds $50,000. For example, if you owe $75,000 for one year and $30,000 for another, the penalty could be 10% of $105,000 ($10,500). These penalties are in addition to interest and any other penalties. Responding fully to CRA requests helps avoid escalating to court-ordered compliance.

When should I consider the Voluntary Disclosures Program?

Consider VDP as soon as you discover unreported income, missed filings, or errors—ideally before CRA contacts you. Unprompted applications receive the best relief (75% interest, 100% penalty). If you've already received an education letter or similar communication, you can still apply (partial relief). VDP is not available if you're under audit or investigation, or if non-compliance was egregious. Consult a tax professional to assess your situation.

How long should I keep records?

CRA Audit Changes 2025–2026: Protect Your Business

Navigating the CRA audit changes 2025 2026 requires understanding both the new enforcement powers and the expanded Voluntary Disclosures Program. J. Wang Chartered Professional Accountant offers tax compliance, audit support, and VDP assistance to help you reduce risk and resolve issues before they escalate.

Audit Support

Voluntary Disclosures

Tax Compliance

Record-Keeping Review

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