Major red flags in a seller’s financial statements that may trigger a CRA audit post-acquisition include inconsistent revenue reporting, unusually high or unexplained expenses, significant related-party transactions, large tax deductions or credits that deviate from industry norms, and discrepancies between tax filings and accounting records. Identifying these helps buyers mitigate future tax risks.

The major red flags in a seller’s financial statements that can trigger CRA scrutiny include inconsistent or missing tax filings, unusually high expenses or deductions that don’t align with industry norms, large related-party transactions, unexplained cash transactions, and significant fluctuations in revenue or profits year-to-year. Seeing these can feel nerve-wracking for a buyer, because post-acquisition, the CRA may hold you responsible for past mistakes. Spotting them early gives you a chance to dig deeper, ask questions, or negotiate protections, which can save a lot of stress, money, and sleepless nights down the line.

Major red flags include persistent cash transactions with weak documentation, which often attract CRA scrutiny. Inconsistent revenue reporting, aggressive expense deductions, or large “owner adjustments” can also signal risk. Unresolved GST/HST or payroll discrepancies are particularly concerning, as they commonly trigger post-acquisition audits.