How Expert Guidance Cleared a $50K GST Dispute

A Montreal business owner was hit with a shocking draft reassessment from the CRA: over $50,000 in GST, penalties, and interest. The auditor claimed that revenue was underreported, expenses were unsupported, and certain input tax credits (ITCs) were ineligible. The owner feared losing the business until Mackisen stepped in and turned the situation around completely.

This case study shows how expert intervention transformed a devastating GST audit into a full victory.

The Shock: A $50K Draft Reassessment

The CRA audit found what the auditor believed were:
• unreported income
• unexplained bank deposits
• missing invoices for ITCs
• incorrect GST coding
• subcontractor payments that looked personal
• duplicated expense entries

The auditor initially proposed:
• GST owing for multiple years
• denial of most ITCs
• penalties for “carelessness”
• daily interest

The owner was overwhelmed and unsure how to fight back.

Step 1 — Full Reconstruction of the Books

Mackisen began by:
• rebuilding all bookkeeping from scratch
• reconciling deposits to actual invoices
• identifying non-taxable deposits (transfers, loans, reimbursements)
• downloading or requesting missing invoices
• removing duplicated expenses
• reorganizing all GST-coded transactions

This created a complete, accurate, audit-ready ledger.

Step 2 — Reviewing the Auditor’s Calculations

The team identified major errors:
• deposits counted twice
• misclassified personal transfers as business income
• GST-treated expenses that were exempt
• ITCs denied without proper review
• mathematical mistakes in the auditor’s spreadsheets

These errors inflated the proposed reassessment dramatically.

Step 3 — Building a Strong ITC Defense

Mackisen:
• created detailed ITC schedules
• attached supporting documents
• cross-referenced each ITC with GST law
• verified supplier registration numbers
• demonstrated business purpose for every claim

This turned the ITC portion of the audit around.

Step 4 — Challenging the Auditor’s Assumptions

The CPA team prepared a structured rebuttal:
• explaining deposit sources
• documenting subcontractor work
• proving that certain expenses were fully creditable
• clarifying GST treatment for zero-rated and exempt items
• correcting the auditor’s legal misinterpretations

This forced the auditor to revise their conclusions.

Step 5 — Leading Communication and Negotiation

Mackisen took full control of communication:
• responding to every auditor question
• presenting documents in indexed, organized binders
• negotiating adjustments based on law and evidence
• ensuring procedural fairness

The tone of the audit shifted dramatically once the CPA became the auditor’s main contact.

The Final Outcome

After negotiations and corrected filings:
• the entire $50,000 proposed reassessment was eliminated
• no penalties were charged
• no additional GST was owed
• interest did not apply
• CRA formally closed the file
• the business remained fully compliant and audit-ready

The owner avoided a catastrophic financial hit.

Key Lessons

• CRA audit findings are often incorrect or incomplete
• Deposit reconciliation is crucial not all deposits are revenue
• Missing invoices can usually be recovered
• ITCs must be defended with documentation
• A CPA can reverse even large, intimidating reassessments

Client Quote

“I was sure I’d lose my business. Mackisen proved every point, challenged CRA’s mistakes, and the entire reassessment disappeared.”

Common Questions

Can CRA really be wrong in an audit?
Yes misunderstandings and calculation errors happen frequently.

Is it too late to fix things after a draft reassessment?
No that’s exactly when a CPA should intervene.

Can missing ITCs be recovered?
Yes if documentation is reconstructed properly.

Does a large reassessment guarantee penalties?
No penalties can be removed with professional argumentation.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal specializes in defending businesses from overwhelming GST/HST audits. We correct records, challenge incorrect CRA assumptions, and secure successful outcomes — even when the stakes are high.