The CRA Is Getting More Powerful. Here's What That Means If You're Self-Employed.

A new federal bill is changing what happens when the CRA comes knocking.

Bill C-31, with updated draft language released May 4, would give the Canada Revenue Agency new tools to compel cooperation during audits. If you ignore a CRA request for documents, penalties could pile up daily until you respond. The clock the CRA normally has to reassess prior tax years could also pause while it waits for you, giving the agency more time to go back through your returns.

Most self-employed Canadians will never face a full audit. But the logic behind Bill C-31 matters to anyone running a side business or freelancing: organized records are not just good housekeeping. They are your primary defence.

What is Bill C-31?

Bill C-31 is proposed federal legislation that would expand the Canada Revenue Agency's audit and enforcement powers. Key changes include a new “Notice of Non-Compliance” mechanism with daily escalating penalties for taxpayers who ignore CRA document requests, and a pause on the normal reassessment clock while the CRA waits for requested information. Updated draft language was released May 4, 2026.

What the CRA typically asks for

When the CRA reviews a self-employed return, the requests tend to be consistent: receipts for business expenses, proof of home office or vehicle use, income records, and GST remittance history. The agency is generally not trying to catch you. It wants documentation that matches what you filed.

The problem for most sole proprietors is not that they claimed something wrong. It is that they cannot find the paper trail six months later.

The six-year rule

CRA guidelines say you should keep tax records and supporting documents for at least six years. For a self-employed person, that means every receipt, invoice, mileage log, and business bank statement, going back far enough that a reassessment notice is not a surprise.

Six years is a long time to hold onto a shoebox.

What good record-keeping actually looks like

The basics that hold up during a CRA review:

Receipts linked to a specific T2125 expense category, not loose in a folder
A record of what each expense was for, not just the amount
GST/HST remittances that can be reconciled back to revenue
Business-use calculations (home office, vehicle) documented at the time, not reconstructed later

NorthOS is built around this pattern. Receipts go into your Google Drive and the app extracts the key data automatically. Your expenses are categorized, your GST is tracked, and your T2125 lines are populated from actual records. If the CRA asks for documentation, the answer is in your Drive.

If you do get a letter

Respond early. Ignoring a CRA letter does not make it go away. Under the proposed Bill C-31 rules, not responding could trigger a formal Notice of Non-Compliance with growing daily penalties.

If the letter asks for records you have organized and can produce, a CRA review is manageable. If it arrives and you are starting from scratch, it becomes expensive in time, accounting fees, and potentially penalties.

The gap between those two outcomes is usually just whether someone kept their records current or let them pile up. The same discipline that keeps your tax set-aside current keeps your records current too.

Frequently asked questions

What is Bill C-31 and how does it affect self-employed Canadians?

Bill C-31 is proposed federal legislation that would expand CRA audit enforcement powers. Key changes include a new Notice of Non-Compliance mechanism with daily escalating penalties for taxpayers who ignore CRA document requests, and a pause on the normal reassessment clock while the CRA waits for requested information. For self-employed Canadians, the practical effect is that ignoring a CRA letter becomes more expensive than it already is.

What is a CRA Notice of Non-Compliance?

A Notice of Non-Compliance is a formal warning the CRA can issue when it believes a taxpayer is not cooperating during an audit or review. Under the proposed Bill C-31 rules, once issued, penalties could accumulate daily until the outstanding information is provided. It is one of several new tools the bill would give the CRA to compel document production.

How long should I keep tax records in Canada as a self-employed person?

CRA guidelines say at least six years from the end of the tax year they relate to. For a sole proprietor, that means receipts, invoices, bank statements, mileage logs, and any documents supporting the deductions on your T2125. If you are involved in a tax dispute or objection, keep records until it is resolved even if that extends past six years.

What does the CRA ask for when auditing a self-employed person?

The most common requests are: receipts and invoices for business expenses claimed on the T2125, bank statements showing business income deposits, a mileage log if vehicle expenses were claimed, proof of home office square footage and home expenses if a home office deduction was claimed, and GST/HST remittance records. The CRA is generally looking for documentation that supports what was filed, not actively looking for fraud.

Does the CRA audit sole proprietors more than employees?

Self-employed Canadians are audited at a higher rate than salaried employees because their income and expenses are self-reported rather than verified by an employer. The CRA uses industry benchmarks to flag returns where expense ratios look unusual for a given business type. Common triggers include unusually high vehicle or home office claims, inconsistent income year over year, and large other-expenses amounts without itemization.

Keep your records CRA-ready year-round

NorthOS tracks your expenses, GST, and T2125 line items throughout the year so your records are ready when you need them. Receipts stay in your own Google Drive.

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