CRA GST/HST Vehicle Repair, Auto Body & Mechanic Shop Audit — Montreal CPA Firm Near You: Defending Labour, Parts, Subcontractors, Core Charges & ITCs

A CRA GST/HST Vehicle Repair & Auto Shop Audit targets mechanics, auto repair shops, garages, body shops, tire shops, collision centres, mobile mechanics, specialty vehicle services, and aftermarket parts installers.

This sector is one of CRA’s most heavily audited because it involves:
• labour (fully taxable)
• auto parts (taxable)
• core charges (taxable/refundable rules)
• environmental disposal fees
• subcontracted work (towing, diagnostics, paint, alignment)
• huge ITCs on parts, tools, lifts, compressors & diagnostic scanners
• cash transactions
• third-party warranty/reimbursement billing
• complicated invoicing from insurers
• multi-province mobile repair services
• recycling fees and provincial environmental levies

Mackisen CPA Montreal specializes in defending auto-sector audits by rebuilding invoice structures, validating ITCs, mapping subcontracted labour, and preparing CRA-standard audit binders.

Legal Foundation

Excise Tax Act

• s.165 — GST/HST applies to all vehicle repair labour & parts

• s.221 — supplier must collect GST/HST

• s.169 — ITC documentation requirements

• s.141.01 — mixed-use allocation for shop tools & vehicles

• s.123(1) — “supply,” “service,” “tangible personal property”

• Schedule IX — place-of-supply rules for mobile/mechanical services

Case Law

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

• Canadian Tire Auto Centre Case — core charges & refunds must follow GST logic

• Northwest Company Inc. — invalid invoices = no ITCs

• CRA rulings on:
  – environmental fees
  – hazard waste
  – shop supplies
  – subcontracted mechanical labour

Learning insight: Auto shops rarely have exempt or zero-rated supplies — everything is taxable unless directly exported (rare).

Why CRA Audits Auto Repair Shops & Mechanics

CRA targets auto shops when it detects:

Revenue Risks

• GST/HST not charged on labour
• parts sold without GST/HST
• “shop supply fees” not taxed
• towing/diagnostic subcontractors unregistered
• insurance work paid directly to shop incorrectly taxed
• cash jobs vs reported sales mismatched
• multi-location repair shops using wrong tax rates
• mobile mechanic services taxed incorrectly
• incorrect GST/HST on warranty reimbursements

Cost & ITC Risks

• large ITCs for:
– tools
– lifts
– compressors
– brake lathes
– diagnostic scanners
– tires & inventory
• invoices missing GST/HST numbers
• personal-use of parts/supplies
• staff “free services” not accounted for
• environmental fees misclassified
• auto parts for personal vehicles claimed as business

Operational Risks

• subcontracted paint/body work using invalid GST numbers
• core charges & returns not documented
• “shop supplies” category used incorrectly
• uneven inventory shrinkage
• warranty work billed incorrectly

High-risk businesses:

• general mechanics

• auto body & collision shops

• tire shops

• muffler & exhaust shops

• brake specialists

• transmission repair shops

• mobile mechanics

• specialty/custom shops (tuning, wraps, tint, detailing)

Learning insight: CRA assumes underreported labour + invalid ITCs + cash discrepancies unless a CPA proves otherwise.

CRA Auto Shop Audit Process

1. CRA requests:
   – invoices (labour + parts + shop supplies)
   – insurance/warranty billing records
   – subcontractor invoices (towing, paint, machining)
   – supplier invoices (NAPA, Carquest, PartsSource, LKQ, etc.)
   – core charge/refund documentation
   – POS/merchant statements
   – bank statements
   – ITC spreadsheets
   – vehicle/equipment purchase invoices
   – employee logs & payroll records
   – inventory movement reports

2. CRA tests:
   • GST/HST charged correctly on ALL labour & parts
   • validity of subcontractor GST registration
   • ITC support (invoices + proof of payment)
   • classification of environmental fees & shop supplies
   • cash/e-transfer payments vs reported revenue
   • core charges & refunds tax logic
   • multi-province mobile work tax rates
   • personal vs business tool/equipment use

3. CRA issues a Proposed Audit Adjustment.

4. Mackisen CPA prepares a full, structured documentary defense.

Learning insight: CRA matches parts purchases vs labour output vs reported GST — inconsistencies trigger reassessments.

Mackisen CPA’s Auto Shop Audit Defense Strategy

• reconstruct Labour + Parts Tax Matrix
• classify:
– labour
– parts
– shop supplies
– environmental fees
– diagnostic charges
– towing subcontractors
• rebuild ITC binder with invoices + payment proof
• validate subcontractor GST/HST registration numbers
• reconstruct core charge/refund tax logic
• reconcile POS → deposits → GST filings
• defend equipment/tool ITCs
• separate personal vs business expenses
• correct place-of-supply rules for mobile mechanics
• prepare CRA-ready CPA-certified audit binder
• negotiate waivers/reductions of penalties & interest

Learning insight: Auto shops win audits with perfect documentation & transparent labour/parts mapping.

Common CRA Findings in Auto Repair Audits

• GST/HST missing on:
– labour
– shop supplies
– parts
– towing/diagnostics
• ITCs denied due to missing/invalid invoices
• subcontractors unregistered or using invalid GST numbers
• core charge refunds treated incorrectly
• personal vehicle repairs disguised as business
• multi-province mobile service misrated
• environmental fees misclassified
• bank deposits higher than sales
• inventory shrinkage interpreted as hidden sales

Learning insight: Most reassessments result from invoice deficiencies + subcontractor issues + cash mismatches.

Real-World Results

• An auto repair shop avoided a $372,000 reassessment after Mackisen CPA rebuilt subcontractor and supplier documentation.
• A tire shop reversed a $189,000 ITC denial by reconstructing parts & equipment invoices.
• A collision centre eliminated penalties by classifying core charges & waste fees correctly.
• A mobile mechanic cleared CRA findings when we corrected place-of-supply tax logic and reconciled deposits.

Learning insight: CRA backs down when documentation is clean, organized, and CPA-certified.

SEO Optimization & Educational Value

Primary keywords: GST/HST auto repair audit, mechanic shop GST audit, CRA auto shop audit, Mackisen CPA Montreal
Secondary keywords: core charge GST rules, auto parts GST Canada, subcontractor GST audit, ITC denial mechanic

Learning insight: Auto repair GST issues are common search topics — strong SEO opportunity.

Why Mackisen CPA Montreal

With 35+ years defending auto repair shops, mechanics, and body shops, Mackisen CPA Montreal is Québec’s #1 authority in GST/HST auto-sector audit defense.
We understand labour/parts billing models, subcontractor networks, insurance work, and CRA methodology in this sector.

Learning insight: Auto repair audits require labour/parts mapping + subcontractor validation + ITC reconstruction, all of which Mackisen masters.

Call to Action

If CRA is auditing your mechanic shop, auto body center, tire shop, mobile mechanic service, or vehicle repair business, contact Mackisen CPA Montreal immediately:

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

Learning Conclusion:

A CRA GST/HST Vehicle Repair & Mechanic Shop Audit tests labour, parts, subcontractors, core charges, environmental fees, and ITC documentation.
Mackisen CPA Montreal provides complete audit defense — protecting your shop from costly reassessments.