CRA & Revenu Québec GST/QST Input Tax Credit Denials: Why ITCs Get Rejected, Refunds Held, and Businesses Reassessed — A Complete Guide by a Montreal CPA Firm

GST/QST Input Tax Credits (ITCs) are essential for almost every business in Quebec. When CRA or Revenu Québec denies ITCs or places a refund on hold, the financial impact can be immediate and severe.
Businesses rely on GST/QST refunds to replenish cash flow, pay suppliers, and maintain operations. But when ITCs are denied—whether because of missing invoices, supplier issues, industry risk, or CRA suspicion of unreported income—refunds get delayed, reassessments are issued, and collections can begin.
This guide explains why ITCs are denied, how refund holds work, what documentation CRA requires, and how Mackisen defends businesses against GST/QST audits, verifications, and reassessment risks.

Legal and Regulatory Framework

Under the Excise Tax Act (for GST/HST) and the Quebec Sales Tax Act (for QST), a registrant may claim ITCs only when:
• GST/QST was paid on eligible expenses
• the expense relates to commercial activity
• proper documentation exists
• invoices meet specific legislative requirements
• suppliers are registered and compliant
• adequate books and records support the claim

CRA and Revenu Québec may:
• review or hold refunds
• deny ITCs
• reassess multiple periods
• request invoices, contracts, bank statements
• perform audits
• apply penalties and interest
• escalate to enforcement

Refund holds are legally permitted during verification.

Key Court Decisions

Courts in both federal and Quebec jurisdictions consistently uphold CRA and RQ decisions to deny ITCs when documentation or supplier verification is inadequate. Key principles include:
• the taxpayer bears the burden of proving ITC eligibility
• documentation must be contemporaneous, legible, and complete
• ITCs can be denied even if expenses are legitimate but documentation is missing
• CRA can audit suppliers and deny ITCs based on supplier non-compliance
• ITCs can be denied when invoices are incomplete or lack specific details
• courts accept bank statements as supplementary proof but not as replacements for invoices
• CRA may deny ITCs if business activity is not clearly commercial

These precedents strengthen CRA’s position during audits.

Why CRA & Revenu Québec Deny ITCs

ITC denials occur when one or more risk factors appear:
• invoices missing key information
• unregistered or non-compliant suppliers
• cash transactions with no support
• mismatch between GST/QST filings and bookkeeping
• unusually large refunds compared to revenue
• inconsistent business model
• high-risk industries (construction, transport, e-commerce, restaurants)
• suspected subcontractor fraud
• undocumented labour
• personal or mixed-use expenses claimed as business
• missing contracts, purchase orders, or agreements
• bank deposits not matching declared sales

Revenu Québec is especially aggressive in ITC denials for “non-registered suppliers” and “questionable commercial activity.”

How Refund Holds & ITC Denials Work (Deep Expansion)

1. Refund Verification Process

CRA or RQ places a hold and sends a request for:
• invoices
• contracts
• bank statements
• proof of payment
• supplier registry confirmation
• business activity documentation
• proof of commercial intent

Refunds remain on hold until verification is complete.

2. Supplier Verification

CRA may audit your suppliers and deny your ITCs if:
• suppliers do not remit GST/QST
• suppliers do not file taxes
• suppliers close or disappear
• suppliers issue invalid invoices
• suppliers are flagged in CRA’s internal risk database

Even legitimate businesses get caught in this crackdown.

3. Denial of Commercial Activity

CRA may deny ITCs if they believe the expense is not tied to:
• real business operations
• profit-oriented activity
• documented commercial intent

Self-employed taxpayers often face denials for home offices, travel, and vehicle use.

4. Partial ITC Denials

CRA may reduce ITCs due to:
• mixed-use assets
• shared personal/business expenses
• inaccurate proportions
• insufficient mileage logs
• undocumented subcontractor work

5. Full Reassessment

If CRA believes the ITC claim is fraudulent or unsupported, they may:
• issue multi-year reassessments
• impose gross negligence penalties
• refer the file to investigations
• freeze bank accounts
• garnish receivables
• escalate to criminal review

Immediate Financial Risks

GST/QST issues can be financially devastating:
• refund delays lasting months
• thousands in denied ITCs
• reassessments with penalties
• aggressive collections
• cash flow collapse
• inability to pay suppliers
• disrupted payroll
• damaged credit and supplier relationships
• increased audit frequency
• blocked refinancing
• liens on business assets

Many small businesses fail following GST/QST refund denial or reassessment.

Mackisen Strategy

Mackisen CPA uses a structured, evidence-driven defence strategy for ITC audits and denials.

Step 1 — Full Documentation Audit

We reconstruct all missing support:
• invoices
• contracts
• bank statements
• electronic receipts
• supplier information
• purchase orders
• proof of delivery
• subcontractor documents
• GST/QST registry confirmation

This is the foundation of ITC defence.

Step 2 — Supplier Compliance Review

We verify:
• whether suppliers were registered
• whether GST/QST numbers were valid
• whether suppliers filed returns
• whether they appear in CRA/RQ risk databases
• whether invoices meet legislative requirements

We correct deficiencies wherever possible.

Step 3 — Correct Bookkeeping & Filings

We fix:
• GST/QST filing errors
• incorrect coding
• duplicate entries
• missing expenses
• reconciliation issues
• sales-to-expense mismatches

Accurate filings significantly increase ITC acceptance.

Step 4 — Prepare Legal & Technical Arguments

Mackisen prepares detailed ITC defence packages including:
• legislative references
• case law citations
• proof of commercial intent
• supplier due diligence
• business activity documentation
• logical explanations for discrepancies
• revised ITC calculations
• reconciliation schedules

This reduces or eliminates reassessments.

Step 5 — Engage CRA or RQ Auditors Professionally

We handle all communication, negotiate with auditors, clarify records, and prevent escalation.

Step 6 — File Notices of Objection (if required)

If CRA/RQ denies the ITCs unfairly, we file objections with:
• detailed evidence
• audit errors
• factual corrections
• legal arguments

Many ITC denials are reversed at Appeals.

Step 7 — Prevent Future ITC Denials

We implement systems for:
• proper invoice management
• GST/QST reconciliation
• supplier verification
• bookkeeping accuracy
• quarterly reporting review

This ensures long-term compliance.

Real Client Experience

A Montreal construction company had $148,000 in GST/QST ITCs denied due to subcontractors with missing registration numbers. Mackisen confirmed supplier compliance, provided missing documentation, corrected filings, and overturned 80 percent of the denial. Refunds were released within weeks.

Another client, an e-commerce seller, had all GST refunds held for three periods. CRA questioned supplier legitimacy. Mackisen reconstructed documentation, provided commercial activity proof, and secured full refund release.

Common Questions

• Can CRA deny ITCs if invoices are missing? Yes.
• Can CRA deny ITCs if the supplier is non-registered? Yes.
• Can CRA hold refunds for months? Yes.
• Can ITC denials be reversed? Often, yes.
• Can CRA deny ITCs for cash transactions? Yes, if proof is weak.
• Can ITC denials lead to reassessment? Yes.
• Does filing an objection stop GST/QST collections? No.
• Can CRA lien my property after ITC denial? Yes, if reassessed amounts go unpaid.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency, and protection from audit risk.