Construction Company Passes GST/QST Audit with Flying Colors

A well-established construction company in Montreal received a notice of GST/QST verification covering two fiscal years. Construction is one of the most frequently audited industries in Quebec due to high cash flow, subcontractor expenses, complex invoicing, and strict documentation rules. But instead of a stressful and costly audit, this business walked away with zero adjustments, zero penalties, and an auditor who congratulated them on exceptional compliance.

This case study shows how it happened and how any construction business can achieve the same outcome.

The Audit Trigger

Revenu Québec selected the construction company for audit due to:
• large input tax refund (ITR/ITC) claims
• multiple subcontractors
• equipment purchases and rentals
• fluctuating revenue across periods
• numerous fuel and vehicle-related expenses
• high-volume supplier invoices

These are common audit triggers in the construction industry.

The auditor requested:
• all subcontractor invoices
• proof of payment
• bank statements
• contracts
• equipment purchase files
• payroll and T5018 slips
• monthly job costing summaries

How the Company Prepared — Long Before the Audit Began

The business had already been working with a CPA firm that ensured:
• clean bookkeeping every month
• subcontractor GST/QST numbers were verified
• every invoice contained proper tax details
• input tax credit/refund schedules were maintained
• job costing was accurate and traceable
• personal vs business expenses were separated
• all equipment purchases had full documentation

This preparation created a strong foundation.

Mackisen’s Role in the Audit

Step 1 — Reviewing Documentation Before Submission

Mackisen examined all:
• supplier invoices
• subcontractor receipts
• bank reconciliations
• equipment purchases files
• vehicle logs

We corrected minor inconsistencies and ensured all documentation was audit ready.

Step 2 — Creating a Fully Indexed Audit Binder

The audit binder included:
• reconciled GST/QST reports
• ITC/ITR schedules
• deposit-to-invoice matching
• subcontractor listings with tax number verification
• copies of all supporting documents

The binder made the auditor’s job easy and eliminated guesswork.

Step 3 — Managing All Communication

The CPA team:
• responded to every auditor request
• clarified technical points
• provided legal references when needed
• explained construction-specific tax rules (equipment, rentals, mixed-use assets)

This maintained full control of the audit narrative.

The Outcome

The auditor completed the audit with:
• no adjustments to GST or QST
• no denied ITCs or ITRs
• no penalties
• no interest

Better yet, the auditor commented that the file was “one of the cleanest” they had reviewed in years.

Why This Audit Succeeded

• subcontractor invoices all had valid GST/QST numbers
• vehicle expenses were properly allocated
• equipment purchases were documented with tax breakdowns
• ITCs/ITRs were supported by detailed schedules
• bookkeeping was up-to-date and accurate
• every expense was traceable to a job or cost center

Most businesses fail audits because of missing documentation this company did not.

Key Lessons for Construction Companies

• Construction is a high-risk industry for audits
• Subcontractor documentation must be perfect
• Equipment purchases need full tax details
• Vehicle and fuel expenses must be allocated correctly
• Paying cash creates problems if receipts are incomplete
• Organized monthly bookkeeping removes 90% of audit issues

Common Questions

Do construction subcontractors need GST/QST numbers?
Yes otherwise ITCs/ITRs may be denied.

Are fuel and vehicle expenses fully creditable?
Only the business portion logs help.

Are equipment rentals taxable?
Yes, they must show correct GST/QST amounts.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures construction businesses stay fully compliant with GST/QST rules. Our audit-ready systems protect your tax credits, prevent penalties, and give you total peace of mind.