CRA GST/HST Food Manufacturing & Packaging Audit — Montreal CPA Firm Near You: Defending Zero-Rated Foods, Ingredient Classification, Co-Packing & ITCs

A CRA GST/HST Food Manufacturing & Packaging Audit examines whether your food production business — whether a co-packer, beverage producer, bakery manufacturer, meal-prep supplier, nutrition bar maker, supplement producer, or food processor — is correctly applying GST/HST to food products, ingredient purchases, packaging components, and manufacturing services.

Food manufacturing is one of CRA’s most technically complex audit sectors because it involves:
• zero-rated foods (basic groceries)
• taxable foods (snacks, treats, supplements)
• hybrid products (food + supplement)
• co-packing services (usually taxable)
• ingredient classification issues
• processing vs manufacturing service distinctions
• private label production
• imported ingredients requiring self-assessment
• large ITCs on machinery & raw materials
• export-related zero-rating

Mackisen CPA Montreal specializes in defending food manufacturing audits through proper product classification, ITC reconstruction, co-packing tax analysis, and CRA-ready audit documentation.

Legal Foundation

Excise Tax Act

• Schedule VI, Part III — zero-rated basic groceries

• Schedule VI exclusions — snack foods, carbonated drinks, confectionery, dietary supplements (TAXABLE)

• s.165 — GST/HST on taxable goods & services

• s.169 — ITC eligibility and documentation requirements

• s.221 — requirement to collect and remit GST/HST

• s.218 & 218.1 — self-assessment on imported goods & digital services

• Schedule IX — place-of-supply rules for interprovincial shipments

Case Law

• Shoppers Drug Mart Case — strict interpretation of zero-rating

• Mondelez Case — distinction between food and snack goods

• Royal Bank v. Canada — strict ITC documentation

• Honeywell v. Canada — zero-rating requires shipping proof

Learning insight: The difference between zero-rated and taxable food products depends on precise legal definitions, not common sense.

Why CRA Audits Food Manufacturers & Co-Packers

CRA flags food manufacturing operations when it detects:

Product Classification Risks

• zero-rated items miscoded as taxable or vice-versa
• protein powders, supplements & functional foods treated incorrectly
• beverages classified improperly (carbonated vs non-carbonated)
• snack vs meal classification errors

Service Risks

• co-packing or bottling services not charged GST/HST
• toll manufacturing services classified incorrectly
• packaging services misinterpreted as exempt

ITC Risks

• large ITCs for machinery, packaging lines, raw materials
• invoices missing GST numbers
• imported ingredients missing self-assessment documentation
• production supplies allocated to mixed (taxable + zero-rated) activities

Operational Risks

• export shipments not supported with bill of lading
• subcontractor invoices invalid
• multi-province shipping taxed incorrectly
• shrinkage/write-off not reconciled

High-risk product categories:

• baked goods

• energy drinks

• sports nutrition & supplements

• ready-to-eat meals

• frozen prepared foods

• beverage manufacturing

• snack foods

• breakfast bars / protein bars

• natural health products (NHPs)

Learning insight: CRA assumes SKU misclassification + ITC issues unless proven otherwise.

CRA Food Manufacturing Audit Process

1. CRA requests:
   – ingredient & recipe breakdowns
   – SKU-level tax classification list
   – production logs
   – purchase invoices
   – co-packing agreements
   – packaging & labelling invoices
   – import documents (CBSA B3 forms)
   – export shipping documents
   – GL & expense reports
   – ITC worksheets
   – merchant & bank statements

2. CRA tests:
   • taxable vs zero-rated food classification
   • co-packing service tax treatment
   • proof of export for zero-rated foreign shipments
   • ITC documentation completeness
   • mixed-use allocation (taxable vs zero-rated production)
   • whether supplies are goods or services
   • place-of-supply for interprovincial distribution

3. CRA issues Proposed Audit Adjustment.

4. Mackisen CPA builds a complete legal + documentary audit defense.

Learning insight: CRA uses sampling & extrapolation, so one misclassified SKU can trigger massive reassessment across all production.

Mackisen CPA’s Food Manufacturing Audit Defense Strategy

• create a SKU Taxability Matrix for every product (zero-rated, taxable, mixed)
• correct classification for:
– supplements
– protein powders
– functional foods
– beverages
– snack foods vs basic groceries
• rebuild ITC binder for ingredients, packaging, machinery & equipment
• defend co-packing & toll-manufacturing service classification
• prepare Supply Chain Tax Map (import → production → packaging → distribution → export)
• reconcile merchant processor deposits with GST/HST returns
• prove zero-rating for exports using bills of lading & customs docs
• justify shrinkage using production data
• prepare CRA audit binder with structured evidence
• negotiate penalty/interest reduction

Learning insight: Food audits are won at the SKU + ingredient + production level, not verbally.

Common CRA Findings in Food Manufacturing Audits

• zero-rated foods incorrectly treated as taxable (or vice-versa)
• supplements misclassified as zero-rated
• beverages taxed incorrectly
• co-packing services missing GST/HST
• ITCs denied due to missing invoice criteria
• self-assessment missing on imported ingredients
• shrinkage treated as unreported sales
• export sales reclassified as taxable (no proof)
• toll manufacturing misinterpreted
• interprovincial shipments taxed incorrectly

Learning insight: CRA’s top adjustments come from classification errors and incomplete ITC documentation.

Real-World Results

• A protein powder manufacturer avoided a $910,000 reassessment after Mackisen CPA rebuilt classification for supplements vs food products.
• A beverage co-packer reversed a $420,000 ITC denial after we provided missing supplier documentation.
• A frozen meal producer eliminated penalties once we mapped their supply chain and corrected zero-rating logic.
• A nutrition-bar manufacturer cleared CRA findings by providing proper import/export documentation.

Learning insight: CRA backs down when the entire production, classification, and tax logic is professionally documented.

SEO Optimization & Educational Value

Primary keywords: GST/HST food manufacturing audit, CRA co-packer audit, zero-rated food GST rules, Mackisen CPA Montreal
Secondary keywords: supplement GST audit, beverage GST review, imported ingredient GST, co-packing service GST Canada

Learning insight: Food manufacturing GST rules create high SEO demand — top opportunity for industry authority.

Why Mackisen CPA Montreal

With 35+ years defending food manufacturers, co-packers, supplement producers, and distributors, Mackisen CPA Montreal is Québec’s leading authority in GST/HST food-sector audits.
We understand ingredient classification, co-packing rules, machinery ITCs, and cross-border supply chains better than any firm.

Learning insight: Food manufacturing audits require SKU-level precision + legal interpretation + operational understanding — we deliver all three.

Call to Action

If CRA is auditing your food products, ingredient classifications, co-packing agreements, ITCs, or distribution chain, contact Mackisen CPA Montreal immediately:

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

Learning Conclusion:

A CRA GST/HST Food Manufacturing & Packaging Audit tests product classification, ingredient definitions, service vs goods rules, import/export tax treatment, and ITC documentation.
Mackisen CPA Montreal ensures every SKU, every ingredient, and every tax rule is defended — protecting you from costly reassessments.