An audit of a commissioned agent’s return rarely starts with a single wrong number. It starts with a pattern the CRA’s risk models recognize — and realtors are a sector the CRA names specifically.
Key takeaways
Most agents who describe being audited say the same thing afterward: it didn’t feel personal, and it didn’t start with an accusation. It started with a phone call confirming a few details, followed by a letter. What actually drives that first call is worth understanding before it happens, because the shape of an audit — what gets asked for, how far back it reaches, and how it ends — is set out in CRA policy that any agent can read in advance.
The CRA doesn’t audit real estate agents because it suspects the profession of dishonesty. It audits sectors its risk models flag as structurally higher-risk, and it says outright that real estate is one of them: “the CRA uses a combination of advanced risk-assessment tools, analytics, leads, and third-party data to detect and address non-compliance…realtors are included in our risk-assessed populations, due to the high level of transactions inherent in a group whose main revenue stream is generated through the sale of real estate.” The CRA’s own list of the ten areas of real estate non-compliance it watches for starts with a line that applies to any self-employed commission earner, agent or not: whether reported income supports the taxpayer’s visible lifestyle — property, vehicles, and spending measured against what was actually declared.
Selection is risk-based, not random and not (in the ordinary case) triggered by a single red flag. “The CRA’s risk-assessment systems identify tax returns that are considered to be at high risk for non-compliance. When a return is identified as high-risk, a CRA officer will review information from various sources to determine whether an audit is needed.” Once a file is opened, contact is typically a phone call from the auditor, followed by a confirming letter with the audit’s details — and the CRA’s own guidance says you’re entitled to end an unconfirmed call and phone the auditor or their team leader back before disclosing anything, or simply wait for the letter.
Where the business records look thin, are kept by one person, mix personal and business accounts, or the reported income sits low against comparable businesses in the same sector, the CRA moves to an indirect method rather than taking the books at face value. The most common version is the net-worth method: “the auditor considers changes in assets and liabilities, personal spending, and other relevant information…the net worth method goes beyond the books and records of the business and involves a comprehensive review of the business owner’s lifestyle using their personal financial records and other verifiable information, such as motor vehicle registration information and land title information.” In practice, this is precisely the comparison the real estate sector page names as its first non-compliance risk — whether declared commission income is consistent with what a taxpayer actually owns and spends. It can also reach a spouse or another member of the household: “the CRA will ask for the personal financial records of the business owner’s spouse, as well as any other contributing member of the household.”
An individual’s normal reassessment period runs three years from the date the original notice of assessment was sent — the Income Tax Act sets it out directly: “the period that ends three years after the earlier of the day of sending of a notice of an original assessment…and the day of sending of an original notification that no tax is payable.” That window is not absolute. The same section allows CRA to reassess beyond it where “the taxpayer…has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return.” That threshold is lower than most agents assume — it doesn’t require intent to deceive. Careless recordkeeping that produces a materially wrong number can be enough to reopen a year that would otherwise be closed, which is the real argument for treating bookkeeping as a compliance function, not an end-of-year chore. The specific categories an auditor is most likely to test are the ones covered in the expenses a new agent forgets.
The retention duty behind all of this sits in the Act itself: every person carrying on a business “shall keep records and books of account…at the person’s place of business or residence in Canada,” and for a sole-proprietor agent that means retaining the general ledger and supporting contracts “six years after the last day of the taxation year…in which the business ceased” — effectively six years from each year’s end while the business continues. That is two years longer than the ordinary three-year audit window, deliberately, because it has to cover the extended window that opens once carelessness or misrepresentation is on the table.
If the auditor proposes no changes, the file closes with nothing further required. If changes are proposed, you get a written summary and thirty days to respond — agree, or set out why you disagree, with supporting documents. A dispute that survives that stage produces a formal Notice of Reassessment, and from there you have the right to file a notice of objection rather than simply accept the number. Interest continues to accrue on any disputed balance while it’s under objection, which is a reason to resolve a genuine documentation gap early rather than let it run. For the specific risk patterns that tend to trigger this kind of review in a real estate return, see what CRA looks at in a realtor’s return.
An agent’s reported commission income has been flat for two years while a new vehicle lease, a larger mortgage, and a second property purchase all show up in the same period, funded partly through a spouse’s account. None of that is, on its own, evidence of anything. But it is exactly the shape of gap the CRA’s risk models are built to notice, and if a file opens, the auditor’s starting point will likely be a net-worth comparison rather than a line-by-line receipt review: assets and liabilities at the start and end of the period, personal spending, and any non-taxable sources — a gift, an inheritance, borrowed funds — that would explain the gap legitimately. An agent who can point to a documented source for every material change closes that comparison quickly. An agent who can’t is looking at a longer file, and potentially at a reassessment reaching back further than three years if the auditor concludes the original numbers were more than an honest mistake. Whether a specific gap is even worth raising with CRA yourself is a separate question — see what happens if you give tax advice.
Not necessarily. Selection is risk-based — the CRA’s own materials describe it as identifying returns “considered to be at high risk for non-compliance,” which is a statistical flag, not an accusation. Real estate is named as a sector the CRA watches closely because of transaction volume, which means more agents get selected than the profession’s actual non-compliance rate alone would suggest.
The normal limit is three years from your original assessment. But the extension for “misrepresentation attributable to neglect, carelessness or wilful default” doesn’t require intent — genuinely careless recordkeeping that produces a materially wrong number can meet that bar. Disorganized is a risk, not a defence, if the result is a number that turns out to be wrong.
Everything that supports what you reported — invoices, receipts, bank and brokerage trust statements, mileage logs, home-office calculations — for six years after the end of the tax year they relate to, per the Income Tax Regulations. If you never filed a return for a year at all, the six-year clock for that year never starts. The instalment payments that come with a strong income year are tracked separately — see what a tax instalment actually is.
A short call is enough to see where your own filing habits match the pattern CRA’s risk models are actually looking for.
