How to Handle a GST/HST Audit: Checklist and Preparation Tips – A Complete Guide by a Montreal CPA Firm Near You

Introduction

A GST/HST audit is one of the most complex and high-risk audits conducted by the Canada Revenue Agency (CRA). Small businesses, contractors, consultants, e-commerce sellers, restaurants, retailers, tradespeople, and corporations are frequently selected for GST/HST audits because sales tax errors are common and costly. CRA auditors scrutinize every transaction—sales, refunds, ITCs, invoices, expense documentation, and place-of-supply rules. Even honest mistakes can lead to thousands of dollars in reassessments, penalties, and interest. This guide explains how GST/HST audits work, the documentation CRA expects, common audit triggers, and how to prepare an audit-ready file to protect your business.

Legal and Regulatory Framework

GST/HST audits are governed by the Excise Tax Act, which grants CRA broad powers to inspect books and records, verify collected tax, confirm Input Tax Credits (ITCs), and reassess GST/HST filings. CRA may audit one reporting period or multiple years. GST/HST rules cover taxable supplies, exempt supplies, zero-rated supplies, place-of-supply rules, ITC eligibility, financial institution rules, digital sales, and e-commerce platforms. CRA may use indirect verification methods such as bank deposit analysis, markup testing, and merchant account reconciliation.

Key Court Decisions

In General Motors of Canada Ltd. v. Canada, the courts emphasized strict compliance with ITC documentation rules. In Precision Gutters v. Canada, ITCs were denied because invoices lacked mandatory details—highlighting the importance of proper documentation. In R. v. Ling, CRA’s indirect audit techniques were upheld, giving auditors wide discretion. These cases illustrate that GST/HST audits depend heavily on detailed, accurate, and complete documentation.

Common GST/HST Audit Triggers

CRA frequently audits when: ITC claims are unusually high, net refunds are filed repeatedly, GST/HST collected does not match reported sales, e-commerce platform reports differ from GST filings, large expenses lack proper invoices, inconsistent filing patterns appear, businesses operate in cash-heavy industries, new businesses spike in ITC claims, or place-of-supply errors suggest incorrect tax rates.

GST/HST Audit Checklist: Documents CRA Will Request

1. Sales Documentation

Invoices issued, receipts, contracts, sales journals, point-of-sale reports, Shopify/Amazon/Stripe/PayPal summaries, bank deposit records.

2. Input Tax Credit (ITC) Documentation

Supplier invoices with all CRA-required fields: supplier name, GST/HST number, date, description, total amount, tax breakdown. Proof of payment is often required.

3. Bank and Merchant Account Records

Bank statements, credit-card merchant statements, e-commerce payout reports, and deposit reconciliation.

4. GST/HST Returns and Working Papers

Detailed calculations of sales tax collected, ITCs claimed, adjustments, and carryforwards.

5. Corporate and Accounting Records

General ledgers, trial balances, financial statements, chart of accounts, payroll journals.

6. Place-of-Supply Verification

Invoices showing customer locations to confirm correct GST/HST rates.

7. Contracts and Agreements

Service contracts, lease agreements, subcontractor invoices, and purchase agreements.

8. Real Estate Documentation

If applicable: sale agreements, builder rebates, HST on new housing, assignment sales, property improvements.

Do’s During a GST/HST Audit

Provide only requested documents.
Organize invoices and ITC evidence clearly.
Ensure all supplier invoices include GST/HST registration numbers.
Allow your CPA to speak directly with CRA.
Respond by deadlines.
Be professional and factual in all communication.
Cross-check bank deposits with reported sales.

Don’ts During a GST/HST Audit

Do not provide estimates.
Do not volunteer extra information or unrelated documents.
Do not produce recreated invoices—CRA may assess gross negligence penalties.
Do not speak to CRA directly without representation.
Do not ignore missing invoices—work with a CPA to fix documentation gaps.

Common Issues Found in GST/HST Audits

1. Missing or Improper ITC Documentation

Invoices lacking GST/HST numbers, unclear descriptions, missing supplier information, or no proof of payment. CRA will deny the ITC entirely.

2. Undeclared Sales

Bank deposits or e-commerce payouts higher than reported sales.

3. Cash Transactions Not Recorded

Restaurants, trades, and retail businesses face major adjustments when deposits exceed reported sales.

4. Incorrect GST/HST Rates

Place-of-supply errors, especially for digital or interprovincial services.

5. Personal vs Business Expenses

Improper ITCs for personal purchases, meals, entertainment, or vehicle use.

6. Real Estate Rules Misapplied

Builder rebates, new housing rebate issues, or GST on assignment flips.

If You Disagree With CRA’s Findings

CRA will issue a proposal letter. You may:
Submit rebuttal documentation.
Correct CRA misunderstandings.
Provide legal arguments for ITC eligibility.
Request audit reconsideration.
If CRA still reassesses incorrectly, file a Notice of Objection within 90 days.

How to Prevent Future GST/HST Issues

Maintain clean bookkeeping, keep all invoices with supplier tax numbers, reconcile sales monthly, store digital receipts, ensure correct GST/HST settings in ecommerce platforms, separate business vs personal expenses, and consult a CPA before claiming large ITCs.

Mackisen Strategy

At Mackisen CPA Montreal, we defend clients during GST/HST audits, prepare audit-ready documentation packages, reconcile merchant accounts, rebuild missing ITC records, challenge CRA findings, negotiate adjustments, file Notices of Objection, and ensure future compliance. Our representation dramatically reduces reassessment risk.

Real Client Experience

An e-commerce seller recovered $42,000 in denied ITCs after we reconstructed Shopify and Stripe reports. A contractor reversed a large GST/HST reassessment through proper documentation of subcontractor expenses. A real estate investor avoided GST penalties after we clarified new housing rebate rules. A retailer passed audit after we reconciled cash logs and merchant deposits.

Common Questions

Can CRA deny ITCs without invoices? Yes. Can CRA audit multiple years? Yes. Does CRA accept digital receipts? Yes—if clear. Should I hire a CPA for a GST audit? Absolutely.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures clients survive GST/HST audits confidently and strategically. We protect your business and prevent costly reassessments through expert representation and meticulous documentation.