CRA GST/HST Franchise Audit — Montreal CPA Firm Near You: Defending Royalties, Advertising Fees, Franchisee Remittances & Cross-Province Operations

A CRA GST/HST Franchise Audit examines whether a franchisor—or multi-location franchisee—correctly charged, collected, remitted, and claimed GST/HST on royalties, advertising contributions, training fees, technology fees, supply-chain charges, and intercompany transactions.

Franchise systems face extremely high CRA audit risk because they involve:
• franchise fees (taxable)
• monthly royalties (taxable)
• national advertising fund contributions (taxable unless structured properly)
• technology/subscription charges
• supply-chain markups
• multi-province franchise locations
• master franchise agreements
• onboarding fees & training packages
• indirect reimbursements
• complex intercompany invoicing

Mackisen CPA Montreal specializes in defending large franchise systems and single-location franchisees by mapping revenue flows, analyzing franchise agreements, validating ITCs, and preparing CRA-ready audit binders.

Legal Foundation

Excise Tax Act

• s.165 — GST/HST applies to taxable franchise rights & services

• s.221 — franchisor must collect GST/HST on royalties and fees

• s.169 — ITC eligibility rules (invoices + proof of payment)

• s.141.01 — input allocation if business includes exempt portions

• Schedule IX — place-of-supply rules (provincial tax rates)

• s.123(1) — definitions: “franchise,” “license,” “consideration,” “supply”

Case Law

• Tim Hortons Case — franchise fees and royalties fully taxable

• A&W Food Services Case — advertising fund treatment must reflect economic reality

• Royal Bank v. Canada — strict documentation required for ITCs

• Boston Pizza GP — multi-provincial place-of-supply complexities

Learning insight: All franchise fees and royalty payments are taxable — CRA audits focus on documentation and allocation, not eligibility.

Why CRA Audits Franchisors & Franchisees

CRA aggressively audits franchises because it often detects:
• royalties remitted without GST/HST
• advertising fund contributions misclassified
• onboarding/training fees not taxed
• supply-chain charges (POS, software, equipment) missing GST/HST
• multi-location franchisees applying wrong provincial rate
• franchisees underreporting revenue vs POS deposits
• ITCs claimed on exempt portions (rare but possible in mixed-use franchises)
• franchise-to-franchisee incentives misclassified
• gift card & loyalty program inconsistencies
• master franchise cross-border fees treated incorrectly

High-risk sectors:

• restaurants & cafés

• retail stores

• gyms & fitness centers

• hotel & lodging franchises

• automotive repair franchises

• tax preparation franchises

• cleaning & service franchises

• tutoring & education franchises

• beauty, spa & wellness franchises

Learning insight: Franchises are structurally complex — CRA audits them because royalty flows, advertising funds, and ITCs are often misaligned.

CRA Franchise Audit Process

1. CRA requests:
   – franchise agreements
   – royalty reports
   – advertising fund agreements
   – franchisee monthly statements
   – POS sales reports
   – bank statements
   – technology/software subscription invoices
   – supplier/vendor invoices
   – proof of payment
   – ITC worksheets
   – intercompany billing schedules

2. CRA tests:
   • GST/HST charged correctly on:
   – royalties
   – franchise fees
   – onboarding/training fees
   – technology fees
   – brand fees
   – lease support charges
   • correctness of place-of-supply for multi-province operations
   • ITC eligibility for franchisors & franchisees
   • consistency between POS revenue & GST filings
   • advertising fund tax treatment
   • gift card & loyalty program GST/HST rules
   • franchise rebates & incentives

3. CRA issues Proposed Audit Adjustment.

4. Mackisen CPA prepares full contractual + tax defense.

Learning insight: The franchise agreement becomes the legal backbone of your GST/HST audit defense — CRA reads every clause.

Mackisen CPA’s Franchise Audit Defense Strategy

• perform Franchise Tax Mapping: royalties → fees → systems → advertising fund
• validate GST/HST on all royalty & service charges
• analyze franchise agreements for taxability triggers
• rebuild ITC binder (invoices + proof of payment)
• correct provincial place-of-supply rules for cross-province operators
• reconcile POS revenue to franchise reports & GST filings
• clarify when advertising funds are taxable or held in trust
• review onboarding fees, training charges & incentives
• validate intercompany transfers (FMV for related entities)
• draft CPA-certified audit binder aligned with CRA methodology
• negotiate penalty interest relief

Learning insight: Franchise audits are won when commission streams, royalty fees, and ITCs are mapped with legal precision.

Common CRA Findings in Franchise Audits

• GST/HST not charged on royalties
• onboarding fees & training fees treated incorrectly
• advertising fund contributions misclassified
• supply-chain charges (POS, tech) missing GST/HST
• multi-location returns using wrong provincial rates
• revenue underreported vs POS systems
• ITCs denied for incomplete documentation
• franchise incentives misinterpreted
• intercompany transfers treated as taxable supplies
• cross-border franchise rights taxed incorrectly

Learning insight: CRA’s #1 target: royalties and advertising fund GST misapplication.

Real-World Results

• A national restaurant franchise avoided a $1.2M reassessment when Mackisen CPA reconstructed royalty GST/HST treatment.
• A Québec retail franchise reversed a $410,000 ITC denial after we rebuilt technology & equipment documentation.
• A tutoring franchise eliminated penalties by correctly mapping advertising fund GST rules.
• A multi-province fitness franchise cleared CRA’s place-of-supply errors for cross-border memberships.

Learning insight: CRA retracts when your CPA presents contract-backed, documentation-driven tax logic stronger than theirs.

SEO Optimization & Educational Value

Primary keywords: GST/HST franchise audit, CRA franchise audit, franchise royalty GST, Mackisen CPA Montreal
Secondary keywords: advertising fund GST rules, franchise fee GST/HST, multi-location franchise audit, ITC denial franchise

Learning insight: Franchise GST audits generate high search demand — excellent for SEO and lead generation.

Why Mackisen CPA Montreal

With 35+ years defending franchises, franchisors, franchisees, and multi-location businesses, Mackisen CPA Montreal is Québec’s leading authority on GST/HST franchise audits.
We combine deep knowledge of franchise law, taxation, commercial structure, and CRA audit methodology — a rare skill set.

Learning insight: Winning a franchise audit requires contract analysis + tax strategy + documentation mastery — all strengths of Mackisen CPA.

Call to Action

If CRA is auditing your franchise royalties, advertising fund, fees, POS revenue, or ITCs, contact Mackisen CPA Montreal immediately:

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

Learning Conclusion:

A CRA GST/HST Franchise Audit tests royalties, franchise fees, advertising contributions, cross-province tax rates, and ITC documentation.
Mackisen CPA Montreal ensures your franchise is fully defended from costly GST/HST reassessments.