How to Handle a GST/HST Audit: Checklist and Preparation Tips

Introduction

A GST/HST audit is one of the most stressful and time-consuming CRA examinations a business can face. Unlike income tax audits, GST/HST audits involve trust funds — the tax you collected from customers but didn’t remit — which CRA treats extremely seriously. Even small bookkeeping errors can lead to large reassessments, denied Input Tax Credits (ITCs), penalties, and daily compounding interest. Businesses in retail, restaurants, construction, e-commerce, professional services, real estate, and gig platforms are audited frequently. This guide provides a full GST/HST audit checklist and strategic preparation tips to help you defend your filings and minimize reassessment risk.

Why CRA Conducts GST/HST Audits

CRA performs GST/HST audits to check for:
unreported taxable sales
incorrect GST/HST collection rates
overstated ITCs
missing GST returns
unremitted GST/HST payments
incorrect place-of-supply rules
incorrect tax treatment of digital services
GST/HST audits focus heavily on documentation — invoices, receipts, POS reports, and financial records must be complete, accurate, and compliant.

Top GST/HST Audit Triggers

large ITC claims
missing or late GST/HST returns
bank deposits higher than reported sales
cash-heavy industries
restaurants and hospitality
construction businesses
large refunds (new businesses, exporters, real estate projects)
incorrect place-of-supply claims
digital sales not taxed properly
CRA relies on risk scoring, industry benchmarks, and data matching to select audit targets.

GST/HST Audit Checklist

Below is the exact documentation CRA typically requests during GST/HST audits. Preparing these documents ahead of time dramatically increases your chances of a smooth audit.

1. Sales Documentation

sales invoices
POS reports
payout reports (Stripe, PayPal, Square)
delivery platform reports (Uber Eats, Skip, DoorDash, Amazon)
e-commerce summaries (Shopify, WooCommerce, Etsy, Amazon FBA)
contracts or statements of work
GST/HST collected schedule
cash register reports or Z-tapes
CRA compares sales records with bank deposits.

2. Bank and Merchant Statements

full bank statements
credit card merchant statements
interac deposit summaries
payout statements from online platforms
CRA uses these to match deposits with reported sales.

3. Input Tax Credits (ITCs)

supplier invoices must include:
legal business name
GST/HST registration number
invoice date
business description
tax amount
proof of payment
Missing or incomplete invoices lead to automatic denial of ITCs.

4. Payroll and Contractor Records

T4s and payroll summaries
source deduction remittances
subcontractor invoices
CRA audits payroll to ensure GST/HST was charged correctly and contractors are legitimate.

5. Real Estate and Capital Asset Purchases

lease agreements
closing documents
construction invoices
renovation records
machinery and equipment invoices
ITCs on capital assets are common audit disputes.

6. GST/HST Return Working Papers

net tax calculation worksheets
GST/HST collected vs ITCs claimed
adjustments
carryforward amounts
CRA expects reconciliation between accounting records and GST/HST returns.

7. Place-of-Supply Documentation

interprovincial transactions
digital services
online sales
These determine which GST/HST/QST rate applies — a major source of errors for online businesses.

8. Corporate Minute Books and Registration Documents

proof of business number
GST/HST registration effective date
corporate resolutions
CRA requests these when they suspect structural inconsistencies.

How CRA Reviews GST/HST Compliance

CRA examines:
sales reconciliations
purchase documentation
cash vs deposit records
invoice accuracy
supplier GST/HST numbers
ITC eligibility
GST collected on taxable vs exempt supplies
Inaccurate or missing documentation is the #1 reason for reassessments.

Common Errors That Lead to GST/HST Reassessments

claiming ITCs on personal expenses
incorrect GST/HST rates
missing GST numbers on supplier invoices
claiming ITCs without proof of payment
underreporting taxable sales
overreporting zero-rated or exempt sales
improper treatment of mixed supplies
real estate/new build GST miscalculations
Gig workers, e-commerce sellers, and contractors frequently make these errors.

How to Defend Yourself in a GST/HST Audit

prepare all documents before responding
reconcile deposits to invoices
separate business and personal expenses
provide only what CRA requests
organize documents professionally
use numbered exhibits
avoid contradictions in explanations
let a CPA communicate with CRA
A professional response reduces audit expansion.

What Happens If CRA Disagrees

CRA may:
deny ITCs
assess unreported sales
apply penalties
charge daily interest
If you disagree with the proposal, you can file a Notice of Objection within 90 days. Note: GST/HST collections do not stop during objections — separate negotiation is required.

When Taxpayer Relief May Apply

Taxpayer Relief can reduce interest and penalties when:
illness
financial hardship
CRA delays
natural disasters
It does not reverse GST/HST tax owing.

Combining GST/HST Audit Defense With VDP

If you made mistakes and CRA has NOT contacted you yet:
VDP can eliminate penalties
VDP can reduce interest
Correct filings proactively before an audit begins.

Mackisen Strategy

At Mackisen CPA Montreal, we defend businesses by preparing audit-ready GST/HST packages, reconstructing ITCs, reconciling sales and bank deposits, correcting place-of-supply errors, drafting CRA rebuttals, negotiating payment plans, and filing Notices of Objection when required. We protect clients from unfair reassessments and ensure full GST/HST compliance.

Real Client Experience

A Montreal restaurant avoided a $52,000 GST reassessment after we corrected ITC documentation. A Shopify seller defended a GST audit through organized payout and sales reconciliation. A construction business overturned denied ITCs by providing corrected invoices. A consultant resolved a GST discrepancy caused by misclassified interprovincial sales.

Common Questions

Does CRA audit GST/HST more often than income tax? Yes. Can CRA deny ITCs for missing details? Immediately. Do objections stop GST collections? No. Can a CPA defend me? Absolutely. Should I respond myself? Risky.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal provides expert representation for GST/HST audits, ensuring accurate compliance, organized documentation, and strong defense against CRA reassessments.