How CRA's matching system works
CRA receives information slips from employers, financial institutions, and other sources before most individual returns are filed. Their automated systems compare this data against filed returns.
The matching process
When you file a T1, CRA's system:
- Matches the SIN to all slips on file
- Compares reported amounts to slip amounts
- Flags discrepancies beyond tolerance thresholds
- Either auto-adjusts obvious errors or queues for manual review
Types of CRA contact
Depending on the issue, you might receive:
- NOA with adjustments: CRA changed the return based on information they have
- Processing review letter: Request for receipts or documentation before assessing
- Post-assessment review: Request for supporting documents after initial assessment
- Audit notification: Formal review of specific items (less common)
Auto-fill reduces but doesn't eliminate errors
CRA Auto-fill imports slip data directly, eliminating transcription errors. However, it doesn't catch slips issued after you download, or prevent errors in deductions and other reported items.
T-slip mismatches
The most common triggers for CRA contact are discrepancies between reported income and slips on file.
Missing slips
Common scenarios:
- Multiple employers: Client forgets about a short-term job
- Investment income: Small accounts with minimal income overlooked
- Government benefits: EI, OAS, CPP payments have slips
- Estate distributions: T3 slips from estates are often missed
Amount mismatches
Even small differences trigger matching:
- Transposition errors: $12,345 entered as $12,435
- Box confusion: Entering Box 14 amount in Box 22 field
- Duplicate entry: Same slip entered twice
- Rounding: Rounding cents when slips show exact amounts
T4 specific issues
Common T4 Errors
Box 14 vs. Box 26
Box 14 is total employment income. Box 26 is pensionable earnings. They're often different. Using the wrong one affects CPP calculations.
Taxable benefits omitted
Box 40 (other taxable allowances) and other benefit boxes are sometimes missed, but CRA has them on file.
Stock option benefits
Box 38 amounts require corresponding deduction claims. Missing either half creates a mismatch.
Rental income issues
Rental properties attract attention because they involve significant deductions against reported income. CRA has multiple data sources to identify rental properties.
How CRA knows about rental properties
- Land registry: Property ownership is public record
- Mortgage interest data: Financial institutions report
- Prior year returns: History of rental claims
- Tenant reports: Renters may claim occupancy on their returns
Common rental errors
- Personal use portion: Not reducing deductions for personal use of property
- Capital vs. current: Treating improvements as repairs
- CCA claims: Inconsistent or excessive capital cost allowance
- Interest allocation: Deducting interest on refinanced amounts used personally
- Missing income: Underreporting gross rent (tenant payments can be verified)
Rental loss pattern
Consistent rental losses over multiple years attract review. If a property loses money every year, CRA may question whether there's a reasonable expectation of profit—or whether personal use is being subsidized.
Self-employment red flags
Self-employment income relies on self-reporting, but CRA has comparison data and ratio analysis.
Industry comparison
CRA maintains data on typical expense ratios by industry. A restaurant claiming 80% cost of goods sold is normal. A consultant claiming the same raises questions. Common flagged ratios:
- Automobile expenses disproportionate to revenue
- Home office larger than reasonable for the business
- Meals and entertainment exceeding industry norms
- Contractor payments without T4A issuance
Inconsistency triggers
- Revenue volatility: Dramatic swings without explanation
- Cash businesses: Industries known for unreported income
- Lifestyle mismatch: Low reported income but high-value asset purchases
- Consistent losses: Year after year with no pivot or closure
GST/HST cross-reference
If your client is GST/HST registered, CRA compares their income tax return to their GST/HST returns. Discrepancies between the two are obvious triggers.
Deduction errors
RRSP over-contributions
CRA tracks RRSP room in real-time. Claiming deductions beyond available room triggers immediate reassessment. Common errors:
- Not accounting for pension adjustments (PA)
- Forgetting about employer matching contributions
- Double-counting contributions made in the first 60 days
- Not tracking spousal RRSP attribution
Medical expenses
Large medical expense claims relative to income often face review requests. Ensure clients have receipts for:
- All claimed expenses
- Prescription drug receipts (not just credit card statements)
- Travel expenses for medical purposes (with supporting documentation)
- Attendant care or nursing home expenses
Charitable donations
Donations above historical patterns attract attention, especially:
- Donations exceeding 5% of income
- New charities not previously supported
- Donations to organizations under CRA review
- Donated property or in-kind contributions
Moving expenses
Moving expense claims require meeting distance tests and having corresponding new employment income. Common issues:
- Distance requirement not met (40km closer to work)
- Claiming expenses for moves within the same city
- Including non-eligible expenses (utility connection fees, for example)
- Exceeding reasonable amounts without documentation
Prevention strategies
Pre-filing checks
Before filing, verify:
- Auto-fill match: Do entered amounts match downloaded slips?
- Prior year comparison: Are there dramatic changes requiring explanation?
- RRSP room: Does the NOA show sufficient room for claimed deductions?
- Supporting documents: Do you have receipts for all deductions?
Documentation standards
For items likely to face review:
- Keep detailed logs for vehicle expenses and home office
- Maintain contemporaneous records (not reconstructed later)
- Photograph receipts that might fade
- Organize by category for quick response to requests
Client communication
Educate clients about what triggers reviews:
- Explain why you're asking for certain documentation
- Warn them about claims that might face scrutiny
- Get written confirmation of unusual items
- Document conversations about aggressive positions
Data accuracy starts upstream
Errors in source data create errors in returns. Resolved extracts and categorizes transaction data accurately, reducing the manual entry errors that trigger CRA review. See how it works.