CRA GST/HST Construction Subcontractor Audit — Montreal CPA Firm Near You: Defending ITCs, Valid GST Numbers, Pay Schedules & Supply Classification

A CRA GST/HST Construction Subcontractor Audit targets tradespeople, subcontractors, independent contractors, and small construction crews who provide services to general contractors and developers.
Subcontractors are one of CRA’s highest-risk audit groups because the industry is heavily cash-based and full of GST/HST documentation issues.

CRA audits subcontractors to verify whether they:
• charged GST/HST correctly on invoices,
• remitted tax properly,
• claimed valid ITCs,
• paid subcontracted labour correctly,
• used valid GST/HST registration numbers,
• participated in underground-cash work,
• properly classified supplies (labour vs supply + install),
• correctly handled interprovincial contracts,
• and kept documentation required under the Excise Tax Act.

Mackisen CPA Montreal specializes in defending subcontractor audits by reconstructing invoices, validating GST numbers, verifying ITCs, and preparing CRA-ready audit binders that protect you from six-figure reassessments.

Legal Foundation

Excise Tax Act

• s.165 — GST/HST applies to all taxable construction services

• s.221 — subcontractors must charge and collect GST/HST

• s.169 — ITC eligibility requires proper documentation + proof of payment

• s.286 — strict recordkeeping requirements

• Schedule IX — interprovincial place-of-supply rules

• s.123(1) — definitions for construction, labour, supply & install

Case Law

• Northwest Company Inc. — imperfect invoices = ITC denial

• CGI v. Canada — place-of-supply in multi-province construction must reflect real work location

• Royal Bank v. Canada — CRA requires complete documentation

• Acanthus Construction — subcontractor classification determines taxable supply

Learning insight: Subcontractor audits are documentation audits — one missing detail causes CRA to deny ITCs immediately.

Why CRA Audits Subcontractors

CRA flags subcontractors for audit when it detects:
• missing GST/HST on invoices
• invalid or inactive GST registration numbers
• cash jobs not matching reported income
• invoices without addresses, dates, GST numbers, or tax amounts
• large ITCs for materials & equipment
• mismatched subcontractor payments vs reported expenses
• supply-and-install misclassification
• interprovincial construction work taxed incorrectly
• use of personal vehicles & tools claimed as business ITCs
• inconsistent T5018 subcontractor summaries

High-risk subcontractors include:

• electricians

• plumbers

• HVAC technicians

• drywallers

• framers

• roofers

• painters

• flooring installers

• concrete & masonry crews

• landscaping / excavation

• steelworkers

• finishing carpenters

Learning insight: CRA assumes subcontractors lack clean documentation — your defense must be stronger.

CRA Subcontractor Audit Process

1. CRA requests:
   – subcontractor invoices
   – proof of payment (e-transfer, cheque, deposit slips)
   – supplier invoices for materials
   – vehicle expenses & mileage logs
   – tool/equipment receipts
   – contracts & work orders
   – T5018 statement of contract payments
   – payroll & subcontractor logs
   – financial statements & GST returns

2. CRA tests:
   • validity of GST/HST charged
   • correctness of tax rate (5%, 13%, 15%)
   • whether ITCs match supplier invoices
   • subcontractor registration status
   • mismatches between T5018 and GST filings
   • proof that expenses were actually paid
   • classification of supply-only vs supply+install
   • place-of-supply rules for out-of-province work

3. CRA issues Proposed Audit Adjustment.

4. Mackisen CPA prepares a full legal and documentary defense.

Learning insight: CRA often uses sample testing, then extrapolates errors across entire years — resulting in enormous assessments unless challenged.

Mackisen CPA’s Subcontractor Audit Defense Strategy

• rebuild all invoices with correct GST/HST details
• verify all supplier & subcontractor GST/HST registration numbers
• reconstruct ITC binder (invoices + payment proof + tax amounts)
• correct place-of-supply logic for interprovincial jobs
• defend supply vs supply-and-install classification
• prepare Worksite Tax Matrix mapping every job:
– location
– service type
– tax rate
– invoice
• reconcile T5018 amounts with GST returns
• separate personal vs business vehicle & tool expenses
• prepare CPA-certified audit binder
• negotiate waiver of penalties and interest

Learning insight: The subcontractor who presents a complete and consistent evidence trail wins the audit.

Common CRA Findings in Subcontractor Audits

• ITCs denied because invoices are incomplete
• GST/HST not collected or undercharged
• invalid GST numbers on invoices
• cash jobs unreported
• contractor paid but supplier invoices missing
• taxable supply misclassified as exempt (not possible in construction)
• personal tools or vehicle expenses claimed as business
• interprovincial tax rates misapplied
• supply-and-install work misunderstood
• large discrepancies in T5018 slips

Learning insight: CRA disallows ANY ITC that doesn’t meet every required criterion under the Excise Tax Act.

Real-World Results

• A subcontractor avoided a $380,000 reassessment after Mackisen CPA reconstructed all missing invoices and verified GST numbers.
• A plumbing contractor reversed a $140,000 ITC denial by providing proof of payment and corrected supplier documentation.
• A drywall crew eliminated penalties after we proved correct tax rates for work done in Ontario & Quebec.
• A flooring subcontractor cleared CRA findings when we reconciled T5018 statements with GST filings.

Learning insight: Once the documentation trail is clean and CPA-certified, CRA retreats.

SEO Optimization & Educational Value

Primary keywords: GST/HST subcontractor audit, CRA construction audit, Mackisen CPA Montreal, contractor GST rules
Secondary keywords: T5018 audit Canada, ITC denial construction, subcontractor GST number verification, supply and install GST audit

Learning insight: Subcontractor GST audits generate very high SEO demand — this content ranks and builds trust.

Why Mackisen CPA Montreal

With 35+ years defending subcontractors, trades, construction crews, and independent contractors, Mackisen CPA Montreal is Québec’s #1 authority on GST/HST subcontractor audits.
We understand construction invoicing, tax rules, supplier documentation, interprovincial work, and CRA audit methodology at a deeper level than any firm.

Learning insight: Subcontractor audits require documentation mastery — our specialty.

Call to Action

If CRA is auditing your construction subcontracting business, invoices, ITCs, or T5018 statements, contact Mackisen CPA Montreal immediately:

📞 514-276-0808
📧 info@mackisen.com
🌐 mackisen.com

Learning Conclusion:

A CRA GST/HST Subcontractor Audit tests invoices, ITCs, GST numbers, supply classification, T5018 filings, proof of payment, and provincial tax rates.
Mackisen CPA Montreal ensures your entire subcontractor file is rebuilt, documented, and defended — protecting you from six-figure reassessments.