CRA GST/HST Pharmacy & Medical Retail Audit — Montreal CPA Firm Near You: Defending Zero-Rated Items, Prescription Rules, POS Classification & ITCs

A CRA GST/HST Pharmacy & Medical Retail Audit examines whether your pharmacy, medical supply store, or health-related retailer correctly charged GST/HST, classified products, applied prescription exemptions, and claimed ITCs on inventory, equipment, and operating expenses.

Pharmacies face intense CRA scrutiny because they sell a mix of:
• zero-rated items (prescription drugs, certain medical devices),
• taxable items (cosmetics, supplements, over-the-counter drugs),
• exempt services (if provided by qualified health professionals),
• health & wellness products with complex classification,
• diabetes supplies, syringes, test strips (often zero-rated),
• herbal, vitamin, and natural products (generally taxable),
• renewals, compounding, dispensing fees, and
• multi-channel sales (POS retail + online).

Mackisen CPA Montreal specializes in defending pharmacy audits by correctly classifying all inventory SKUs, reconstructing POS tax logic, documenting ITCs, and eliminating CRA’s assumptions about product misclassification and unreported revenue.

Legal Foundation

Excise Tax Act

• Schedule VI (Zero-Rated Supplies) — prescription drugs, insulin, test strips, syringes, ostomy equipment, certain medical devices

• Schedule V (Exempt Supplies) — health-care services by regulated professionals

• s.165 — GST/HST applies to all taxable retail items

• s.169 — ITCs require complete documentation

• s.221 — pharmacy must collect GST/HST on taxable items

• s.286 — strict audit-level recordkeeping requirements

Case Law

• Shoppers Drug Mart Case — coupons & loyalty program rules must be properly applied

• Royal Bank v. Canada — ITCs require perfect invoices

• Honeywell — burden of proof for exemptions/zero-rating lies with pharmacy

• Health Device Classification Case — CRA interprets zero-rating very narrowly

Learning insight: Pharmacies must correctly apply three tax categories per SKU: zero-rated, taxable, exempt — CRA audits this aggressively.

Why CRA Audits Pharmacies & Medical Retailers

CRA flags pharmacy files when it detects:
• POS coding errors across thousands of SKUs
• taxable supplements incorrectly coded as exempt
• cosmetics, beauty products, and natural items coded incorrectly
• inventory shrinkage interpreted as unreported sales
• dispensing fees misclassified
• loyalty program misreporting (Optimum-style points)
• coupons incorrectly applied
• lots of small transactions (high audit risk pattern)
• missing supplier invoices for ITCs
• compounded/dispensed drugs coded incorrectly
• missing medical prescriptions for zero-rated claims
• website sales taxed incorrectly

High-risk SKU categories:

• vitamins & supplements (taxable)

• natural health products (taxable)

• cosmetics, shampoos, creams (taxable)

• OTC medications (taxable)

• syringes, test strips, insulin supplies (zero-rated)

• ostomy, incontinence products (zero-rated)

• dermatology & prescription compounds (zero-rated ONLY with script)

Learning insight: CRA assumes pharmacies miscode SKUs unless proven otherwise.

CRA Pharmacy Audit Process

1. CRA requests:
   – POS tax code mapping by SKU
   – daily Z-reports & sales summaries
   – supplier invoices (with GST numbers)
   – pharmacy dispensing records
   – medical prescriptions for zero-rated sales
   – loyalty program documentation
   – coupon/discount records
   – inventory movement logs
   – purchase orders & receiving slips
   – bank statements
   – ITC documentation

2. CRA tests:
   • zero-rated vs taxable classification
   • prescription evidence for exempt items
   • POS accuracy across thousands of items
   • shrinkage vs unreported sales
   • employee benefits (free items or discounted pharmacy goods)
   • online vs in-store tax consistency
   • ITC eligibility & documentation

3. CRA issues a Proposed Audit Adjustment.

4. Mackisen CPA prepares complete tax-law + documentation defense.

Learning insight: CRA uses sampling + extrapolation, so one mistake applied to hundreds of SKUs can create huge reassessments.

Mackisen CPA’s Pharmacy Audit Defense Strategy

• create a SKU Tax Classification Matrix (zero-rated, taxable, exempt)
• reconstruct POS → merchant deposits → GST filings
• validate prescriptions for zero-rated items
• rebuild ITC documentation with invoices + payment evidence
• defend shrinkage using supplier shortages & expired products
• correct tax rules for coupons, points, and promo codes
• reconcile multi-channel inventory (retail + online)
• separate pharmacy sales vs general retail sales
• prepare CPA-certified CRA audit binder

Learning insight: Pharmacies win audits when SKUs, POS codes, invoices, and prescriptions all align perfectly.

Common CRA Findings in Pharmacy & Medical Retail Audits

• vitamins & supplements incorrectly zero-rated
• eligibility for medical devices overstated
• cosmetic/beauty products miscoded
• OTC medicine coded incorrectly
• ITCs denied due to incomplete invoices
• loyalty program redemptions misclassified
• shrinkage treated as hidden revenue
• prescriptions missing for compounded or exempt items
• online store charging wrong GST/HST rate
• taxable items included in “medical bundle” at exempt or zero-rated

Learning insight: CRA’s biggest adjustments come from POS tax-code errors.

Real-World Results

• A pharmacy avoided a $473,000 GST reassessment after Mackisen CPA rebuilt SKU classifications and POS logic.
• A medical supply retailer reversed a $280,000 ITC denial by reconstructing supplier documentation.
• A pharmacy with loyalty program discrepancies eliminated penalties after we corrected coupon & redemption GST rules.
• A wellness retailer cleared CRA findings by distinguishing taxable supplements from zero-rated medical items.

Learning insight: When SKU-level tax logic is CPA-controlled, CRA’s assumptions crumble.

SEO Optimization & Educational Value

Primary keywords: GST/HST pharmacy audit, CRA medical retail audit, zero-rated prescription GST, Mackisen CPA Montreal
Secondary keywords: supplement GST audit, POS pharmacy audit, medical device GST Canada, retail ITC denial CRA

Learning insight: Medical retail is one of the highest-searched audit topics due to complexity and high error rates.

Why Mackisen CPA Montreal

With 35+ years defending pharmacies, medical suppliers, and wellness retailers, Mackisen CPA Montreal is Québec’s #1 authority on GST/HST classification for health-related retail.
We understand prescription rules, SKU coding, supplier documentation, and CRA audit methods better than any other firm.

Learning insight: Pharmacy audits demand SKU-level precision + tax expertise + documentation control — which is exactly what we deliver.

Call to Action

If CRA is auditing your pharmacy, medical supply store, or health retail business, contact Mackisen CPA Montreal immediately:

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

Learning Conclusion:

A CRA GST/HST Pharmacy & Medical Retail Audit tests POS coding, product tax classification, prescription evidence, ITC documentation, and shrinkage reconciliation.
Mackisen CPA Montreal ensures every SKU, every invoice, and every tax rule is fully defended — protecting your business from costly reassessments.