Rental Income Reporting: The Red Flag Most Accountants Warn About
Eric Sonego from Côté and Associates breaks down the CRA mistakes that trigger audits — and what business owners need to do differently at tax time.
Hosts: Phoenix Business Exchange's Tony Gyenis and Bernie Franzgrote
Eric Sonego breaks down the CRA mistakes that trigger audits — rental income, donations, tax software errors, and what to do when the letter arrives.
GROWTH CATEGORY: Sales & Revenue
Brought to you by Phoenix Business Exchange, Profit10™, and Sterling Grace Technologies.
Most business owners don't know they've triggered a CRA audit until the nine-page letter arrives.
By then, the damage is already in motion — documents to gather, questions to answer, and a reviewer who may or may not know what they're reading.
Eric Sonego from Côté and Associates has spent 30 years on the front end of these situations. At a recent Phoenix Business Exchange session, he told it straight. No filter. Just what business owners actually need to know.
Watch the full conversation here:
WHO THIS IS FOR
Business owners / Solopreneurs / Incorporated professionals / Anyone with rental income, investment activity, or a complicated return
Key Lessons
1. Know who should never file their own taxes
If your income is all slips — T4, T3, T5 — you can probably file yourself. CRA already has those numbers. But if you run a business, carry rental income, sell property, or hold investments, the picture gets complicated fast. These are the files that trigger flags. And tax software isn't built for them — Intuit is currently facing a class action suit over errors made in 2024 and 2025 returns. If your situation is complex, get a qualified accountant to review it before anything goes to the government.
2. The rental income postal code problem is real — and preventable
CRA's computer flags rental income at any address that doesn't match your home address. Not because you've done anything wrong, but because the system assumes you made a mistake. That triggers a letter asking for the deed, mortgage documents, and anything else that proves the property exists somewhere other than where you live. A qualified accountant files this in a way that pre-empts the question entirely.
3. Strategy matters more than compliance alone
Large charitable donations that don't match your income level will trigger a full audit — of you and the charity. Summer is when co-op students handle CRA files; wait until September and you get a more experienced reviewer. Medical supplement claims put a seven-year red flag on your account. Eric's approach: know what the computer is looking for, and don't give it anything easy to grab.
Practical Steps
Three things you can do this week:
- Review your last return. If you have rental income, investment activity, or business income and you filed it yourself, have a qualified accountant look it over before the next filing cycle.
- Match your charitable donations to your income picture. If you're planning a large donation, talk to your accountant first. Splitting it across five years is a simple strategy that keeps you off the radar.
- Get ahead of any CRA correspondence. If you've received a letter, don't respond in the summer. Call and request a September date. The quality of reviewer you get matters more than people realize.
About the Guest
Eric Sonego is an accountant with Côté and Associates Professional Corporation — an 11-office firm operating across Canada and the US. Eric and his team handle everything from personal returns to full corporate files, making sure clients' personal and corporate pictures line up before anything goes to CRA. If you're tired of surprises at tax time, Eric is the kind of accountant who thinks ahead rather than just files forms.
Connect with Eric: LinkedIn | CAPROS Blog | Video Library
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FAQ
Q: Do I really need an accountant if I have a simple tax return?
If your income is all T4 slips, you can likely file yourself — CRA already has those numbers. But if you have any business income, rental income, or investments, the complexity jumps fast and the cost of a mistake is higher than the cost of a good accountant.
Q: What triggers a CRA audit for a small business owner?
The most common triggers are rental income at a different address than your home, charitable donations that don't match your income level, medical expenses that look inflated, and capital gains claims on old properties without supporting purchase documentation.
Q: What should I do if I get a CRA audit letter?
Don't respond immediately — especially in the summer. Call CRA and request a September date. Then have a qualified accountant review the letter before you respond to a single question. Eric's advice: let the client answer what they can in plain language first, and only escalate to professional correspondence if needed.
