CRA GST/HST Exempt Supply Audit — Montreal CPA Firm Near You: Proving Your Transactions Are Truly Non-Taxable

A CRA GST/HST Exempt Supply Audit focuses on verifying whether your business correctly treated certain goods or services as exempt from GST/HST under the Excise Tax Act. Unlike zero-rated supplies (taxable at 0%), exempt supplies do not allow input tax credits (ITCs). This makes exempt classifications a high-risk audit area because CRA wants to ensure businesses are not avoiding GST/HST or claiming ITCs on ineligible items.

Mackisen CPA Montreal specializes in defending exempt-supply audits by analyzing your operations, reviewing contracts, reconstructing documentation, and demonstrating that each exempt supply meets the exact wording and conditions outlined in the Excise Tax Act.

Exempt supply rules are complex and differ across industries such as healthcare, education, financial services, insurance, residential rents, and childcare. CRA audits these sectors aggressively.

Legal Foundation

Excise Tax Act Schedule V — lists all categories of exempt supplies, including childcare, medical services, residential rent, educational services, and financial services.
Excise Tax Act s.165 — governs GST/HST application and exemptions.
Excise Tax Act s.169 — prohibits ITC claims on exempt supplies.
Case law: Royal Bank of Canada v. Canada — CRA must interpret exemptions narrowly, consistent with legislative intent.

Learning insight: CRA interprets exemptions strictly. You must prove your supply fits precisely into the exemption.

Why CRA Conducts Exempt Supply Audits

CRA initiates exempt-supply audits when it detects:
• businesses claiming ITCs while performing exempt services
• misclassification of taxable services as exempt
• confusion between zero-rated vs exempt services
• large discrepancies between sales revenue and GST/HST collected
• industries with high exempt-classification risk (healthcare, education, finance, real estate)
• errors in place-of-supply logic for multi-province exempt activities
• missing or unclear documentation supporting exempt status
• mixed-supply situations (partially exempt, partially taxable)

Learning insight: Most audits occur because businesses misunderstand the difference between exempt, zero-rated, and taxable.

CRA Exempt Supply Audit Process

1. CRA requests invoices, contracts, service descriptions, client agreements, and financial statements.

2. CRA determines whether each supply meets Schedule V exempt criteria.

3. CRA tests whether any taxable components were embedded inside “exempt” services.

4. CRA verifies no ITCs were claimed on exempt supplies (common error).

5. CRA determines whether registration is required or must be cancelled.

6. Mackisen CPA submits audit-ready binders proving classification accuracy.

Learning insight: CRA wants classification evidence, not explanations.

Mackisen CPA’s Exempt Supply Audit Defense Strategy

• classify every supply according to Schedule V wording
• analyze mixed-supply transactions to separate taxable vs exempt components
• build CPA-certified exempt-supply matrices
• reconstruct documentation (contracts, invoices, service descriptions)
• remove ineligible ITCs and correct filings to reduce penalties
• defend healthcare, education, residential rent, and financial-services exemptions
• prepare technical memos referencing Excise Tax Act and CRA policy rulings
• negotiate ITC penalty relief when errors were unintentional

Learning insight: Exempt audits require legal interpretation plus accounting evidence — Mackisen CPA provides both.

Common CRA Findings in Exempt-Supply Audits

• taxable services incorrectly treated as exempt
• ineligible ITCs claimed on exempt supplies
• misclassification of zero-rated services as exempt
• missing service descriptions proving exemption
• combined services improperly treated as fully exempt
• incorrect treatment of residential rents
• financial services misinterpreted as exempt when they are taxable
• childcare, medical, or educational programs not meeting exemption conditions

Learning insight: Exempt classifications fail when wording and documentation are not perfectly aligned.

Real-World Results

• A private education center avoided a $290,000 reassessment when we proved the program met CRA’s definition of exempt “instructional service.”
• A childcare operator reversed a $120,000 GST penalty after we reconstructed exempt-supply documentation and corrected disallowed ITCs.
• A real-estate investor avoided a $330,000 audit adjustment when we proved residential rent was exempt and provided corrected lease documentation.
• A healthcare clinic cleared its audit after we segregated mixed supplies and removed taxable components.

Learning insight: CRA backs down when your exempt-supply file is cleaner and tighter than their audit assumptions.

SEO Optimization and Educational Value

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Learning insight: Detailed, structured content builds both audit credibility and SEO authority.

Why Mackisen CPA Montreal

With over 35 years in sales-tax defense, Mackisen CPA Montreal is one of Québec’s strongest firms for exempt-supply audits. We know every Schedule V exemption, every CRA ruling, and every documentation requirement. Our bilingual CPAs defend healthcare providers, landlords, schools, childcare centers, financial professionals, and service organizations against exempt-classification reassessments.

Learning insight: Exempt-supply audits require precision — not approximation. We deliver that precision.

Call to Action

If CRA is challenging your exempt classification or ITCs, act immediately.
Contact Mackisen CPA Montreal for exempt-supply audit defense, classification correction, and sales-tax compliance strategies.
Phone: 514-276-0808 | Email: info@mackisen.com | Website: mackisen.com

Learning conclusion: A CRA GST/HST Exempt Supply Audit tests whether your business applied exemptions correctly, legally, and consistently. Mackisen CPA Montreal ensures your classification is defensible, documented, and compliant — protecting your business from penalties and reassessments.