Handling a Revenu Québec (ARQ) Tax Audit – A Complete Guide by a Montreal CPA Firm Near You

Introduction

A tax audit from Revenu Québec (ARQ) is different from a CRA audit—stricter timelines, more aggressive enforcement, additional provincial tax rules, and separate audit officers. ARQ audits often target Quebec income tax, QST, source deductions (QPP, QPIP, HSF), and payroll compliance. Quebec operates the most intensive provincial audit system in Canada, and failing to respond quickly or correctly can result in penalties, reassessments, interest, garnishments, or frozen bank accounts. This guide explains how ARQ audits work and how to protect yourself or your business during the process.

Legal and Regulatory Framework

ARQ audits are governed by the Tax Administration Act (Quebec), Quebec Sales Tax Act, and provincial employment legislation. ARQ has authority to request books, inspect premises, demand explanations, freeze refunds, reassess up to 3 years normally and further back if misrepresentation is suspected, and coordinate with CRA for joint audits. Quebec taxes include provincial income tax, QST, QPP, QPIP, HSF, CNESST payroll requirements, and municipal-level obligations for certain industries. ARQ’s deadlines are strict—responses are often required within 10 to 21 days, and extensions are more difficult to obtain compared to CRA.

Key Court Decisions

In Sogetel Mobilité Inc. v. Revenu Québec, the court upheld ARQ’s right to demand extensive documentation and freeze refunds during audits. In Caron v. Québec, the court confirmed penalties for inaccurate RL-1 and QST reporting. In Revenu Québec v. HomeAway, QST registration obligations were enforced even for out-of-province digital sellers. In Galardo v. Québec, ARQ successfully applied misrepresentation rules to reassess multiple years of unreported income. These decisions emphasize that ARQ audits are strict and highly procedural.

Why ARQ Audits Are Different

ARQ audits are often more aggressive because Quebec administers its own tax system and enforces compliance tightly. ARQ uses integrated data matching across provincial payroll filings (QPP, QPIP, HSF), RL-1 slips, QST returns, GST returns, income tax filings, and CNESST data. Red flags include QST discrepancies, unfiled RL-1 slips, payroll irregularities, missing QPP or QPIP deductions, rental or business income mismatches, large Quebec credits, childcare deductions, and real estate transactions. ARQ also conducts joint audits with CRA for individuals and corporations with national activity.

Common Triggers for ARQ Audits

1. QST and GST Mismatches

Differences between GST and QST filings immediately trigger review.

2. Payroll Errors

Incorrect QPP, QPIP, HSF, or RL-1 reporting creates automatic red flags.

3. Large or Suspicious Quebec Credits

Childcare credit, solidarity tax credit, and work premium claims are frequently audited.

4. Real Estate Transactions

ARQ often investigates assignment sales, flipping, capital gains vs business income, and principal residence claims.

5. Unreported or Cash Income

ARQ aggressively audits cash-based industries such as restaurants, salons, mechanics, construction, tutoring, and convenience stores.

How to Handle an ARQ Audit

1. Read the Audit Letter Immediately

ARQ deadlines are strict. Missing a response deadline can result in automatic reassessment or penalties.

2. Provide Only What ARQ Requests

Over-disclosure may cause the audit to expand. Provide exactly the documents they request, nothing more.

3. Organize All Documents Professionally

This includes invoices, receipts, RL-1 slips, payroll summaries, bank statements, QST filings, GST filings, and bookkeeping records.

4. Avoid Speaking to ARQ Directly

Professional representation protects you from unnecessary admissions, misunderstandings, or expanded audit scope.

5. Ensure Federal and Quebec Filings Match

Inconsistent information between CRA and ARQ returns is a major red flag and must be reconciled.

6. Prepare Explanations for All Irregularities

ARQ auditors expect clear explanations supported by evidence for discrepancies, missing records, or unusual financial activity.

7. Challenge Improper Requests

Sometimes ARQ requests information outside their scope; a CPA representative can push back properly.

8. File a Notice of Objection if Needed

If you disagree with an ARQ reassessment, Quebec allows formal objections similar to CRA. Deadlines are strict—generally 90 days.

Mackisen Strategy

At Mackisen CPA Montreal, we manage ARQ audits with a structured, defensive approach. We review audit letters, compile all required documents, reconcile GST/QST filings, correct payroll errors, prepare financial explanations, communicate directly with ARQ auditors, challenge improper assumptions, negotiate revised assessments, and file objections when needed. We also coordinate CRA and ARQ compliance to prevent mismatches that trigger future audits.

Real Client Experience

A Montreal restaurant audited for QST discrepancies avoided major reassessment after we reconciled supplier invoices and corrected POS reporting. A spa with RL-1 payroll errors faced penalties; we corrected remittances and secured partial relief. A real estate investor audited for assignment sales avoided business income reclassification after we proved long-term investment intent. A construction contractor with cash deposits passed audit after we documented job revenue and reconciled bank activity.

Common Questions

Is ARQ stricter than CRA? Yes—Quebec is known for fast timelines and strict enforcement. Can ARQ freeze refunds? Yes—until the audit is resolved. Can ARQ share information with CRA? Yes—joint audits are common. What if I disagree with ARQ? File a formal objection within 90 days.

Why Mackisen

With over 35 years of combined CPA experience, Mackisen CPA Montreal defends individuals and businesses in complex ARQ audits. We ensure compliance, minimize reassessments, and protect taxpayers from aggressive provincial enforcement.