This is a crucial concern for many people and business owners, especially during an audit. The answer is: It depends.

When the CRA conducts an audit, they require evidence to support the information you’ve reported on your tax return. Typically, you’ll be asked to provide bank statements, receipts, and proof of payments. These documents are essential for verifying your reported income and expenses. If the documentation you provide is sufficient, the CRA will generally not need to dig deeper. However, if they find discrepancies or insufficient evidence, they may request additional information, potentially including more detailed bank records.

The key to protecting your business during a CRA audit is meticulous record-keeping. Any expenses you claim on your tax return should be backed up with corresponding documentation, whether they go through your bank account or not. If you’re claiming a business expense that wasn’t paid directly through your business bank account, make sure you have a clear proof of payment and receipt. Misreporting or a lack of documentation can raise red flags, leading to more in-depth scrutiny or even penalties.

It’s also critical to avoid mixing personal and business expenses. If you mistakenly record personal expenses as business ones, or if your bookkeeping is inconsistent, it can create issues during an audit. The CRA may question these transactions, which can lead to a more extensive audit or even potential fines. Always ensure your records are accurate and that any expenses claimed are genuinely business-related.