GST/HST Audit Checklist for Restaurants: How to Prepare for a Sales Tax Audit – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Restaurants are one of the most frequently audited industries for GST/HST compliance. Cash transactions, high staff turnover, complex food categories, delivery platforms, and daily POS adjustments make restaurants a prime target for CRA sales tax audits. If CRA believes GST/HST has been underreported—or Input Tax Credits (ITCs) were overstated—it can lead to significant reassessments, penalties, and daily compounded interest. This guide provides a complete GST/HST Audit Checklist for Restaurants, helping owners prepare, organize records, and defend their tax filings with confidence.

Legal and Regulatory Framework

GST/HST audits are governed by the Excise Tax Act, which regulates taxable supplies, zero-rated foods, exempt supplies, ITCs, tax remittance deadlines, and restaurant-specific rules. CRA audit teams often use indirect methods—bank deposit analysis, POS reconciliation, markup testing—to verify restaurant sales. Restaurants must keep detailed records for at least six years, including POS reports, Z-tapes, supplier invoices, and food inventory.

Key Court Decisions

In Precision Gutters v. Canada, CRA’s strict enforcement of proper ITC documentation was upheld. In R. v. Ling, indirect audit methods were allowed where records were incomplete—common in restaurants with cash sales. In Café de la Paix Inc. v. Canada, GST/HST reassessments were overturned after the restaurant provided strong POS documentation. These cases prove that success depends on detailed evidence.

GST/HST Audit Checklist for Restaurants

1. Sales and POS Records

• Daily sales summaries

• Z-reports and X-reports

• POS tapes for all registers

• Split receipts showing food vs alcohol

• Delivery platform reports (UberEats, DoorDash, SkipTheDishes)

• Refund and void logs

• Gift card redemption data

2. Bank and Merchant Statements

• Debit/credit terminal summaries

• Stripe/PayPal/Square reports

• Reconciliation of deposits to POS sales

3. Input Tax Credits (ITCs)

• All supplier invoices with GST/HST numbers

• Food purchases

• Beverage and alcohol invoices

• Cleaning supplies

• Uniforms and linens

• Kitchen smallwares

• Repairs and maintenance

• Proof of payment for each invoice

4. Food Inventory Records

• Opening inventory

• Purchases

• Closing inventory

• Waste/spoilage logs

5. Alcohol Inventory

• Purchase invoices

• Consumption reports (if bar area exists)

• Shrinkage records

6. Delivery Platform Records

• Sales summaries

• Commission fee reports

• Chargeback summaries

• Payout reports
  CRA often finds discrepancies between POS and delivery platforms—reconciliation is essential.

7. Payroll and Tips

• Payroll journals

• Source deduction remittances

• Tip allocation and reporting

• Staff meal logs

8. Capital Asset Purchases

• Kitchen equipment invoices

• Renovation receipts

• Leasehold improvements

9. GST/HST Filing Working Papers

• Sales tax collected schedule

• ITC claim schedule

• Adjustments and carryforwards

• GST/HST return copies

Common Auditor Adjustments in Restaurant Audits

CRA often adjusts GST/HST due to: understated sales, unreported cash sales, overstated ITCs, missing supplier invoices, incorrectly taxed alcohol vs food items, misclassification of zero-rated items, POS discrepancies, or inconsistent deposits.

How to Reduce GST/HST Audit Risk

Perform monthly reconciliations, keep supplier invoices organized, track voids and refunds, ensure POS accuracy, maintain separate records for delivery platforms, and avoid mixing personal and business spending.

What to Do When You Receive an Audit Letter

Respond immediately, allow your CPA to communicate with CRA, gather the checklist items above, organize files chronologically, and avoid over-sharing documents that CRA did not request.

Mackisen Strategy

At Mackisen CPA Montreal, we build audit-ready GST/HST files for restaurants by reconciling POS, bank deposits, and delivery platforms, reconstructing missing ITC evidence, and defending clients during CRA audits. Our structured approach significantly reduces reassessments.

Real Client Experience

A Montreal restaurant reversed a $47,000 GST reassessment after we matched POS and UberEats data. A café recovered denied ITCs through corrected invoices. A bar avoided penalties after reclassifying food vs alcohol tax rates properly. A family restaurant passed a full CRA audit after we rebuilt their GST schedules.

Common Questions

Can CRA deny ITCs without invoices? Yes. Can CRA assume higher sales than reported? Yes—using indirect audit methods. Do delivery apps need reconciliation? Absolutely. Should restaurants hire a CPA for GST audits? Strongly recommended.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal protects restaurants from GST/HST reassessments with expert documentation, precise reconciliation, and strong audit defense.