How to Prepare for a GST/QST Audit: Steps to Stay Audit-Ready

Introduction

Receiving a GST or QST audit notice from Revenu Québec or the Canada Revenue Agency (CRA) can feel intimidating — but with proper preparation, it doesn’t have to be. Most audits are not random; they are triggered by filing discrepancies, missing documentation, or inconsistencies between your GST/QST returns and income-tax filings.

This guide from Mackisen CPA Montreal explains exactly how to prepare for a GST/QST audit, what auditors look for, and how to protect your business before, during, and after an audit. Whether you are a small business owner, self-employed professional, or corporation, these steps will help you stay audit-ready at all times.

Legal and Regulatory Framework

Audits are authorized under:

• Excise Tax Act (R.S.C. 1985, c. E-15) – federal authority for GST/HST audits.

• Quebec Sales Tax Act (R.S.Q., c. T-0.1) – provincial QST audit provisions.

• Tax Administration Act (RLRQ, c. A-6.002) – grants Revenu Québec investigative and seizure powers.

Under these statutes, auditors can review books, invoices, and digital records to ensure that:

1. GST and QST were properly collected and remitted.

2. Input Tax Credits (ITCs) and Input Tax Refunds (ITRs) were claimed correctly.

3. Records are accurate, complete, and maintained for at least six years.

Learning Insight

An audit is not an accusation — it’s a verification. Businesses that maintain organized records and respond professionally often close audits quickly and without penalties.

Why GST/QST Audits Happen

Audits can be triggered by:

• Late or missing returns.

• Large or repeated refund claims.

• Sudden revenue drops or spikes.

• Inconsistencies between GST/QST filings and income tax.

• Random sector reviews (construction, retail, hospitality).

• Anonymous tips or cross-matching with suppliers’ filings.

Learning Insight

Revenu Québec uses data-matching algorithms to compare your GST/QST returns with suppliers, payroll, and income-tax data. Even small mismatches can trigger a review.

Step-by-Step: How to Prepare for a GST/QST Audit

Step 1 — Organize Your Records

Auditors usually request:

• Copies of all filed GST/QST returns (FPZ-500-V forms).

• Sales and purchase journals.

• General ledger and trial balance.

• Invoices, receipts, and bank statements.

• Proof of payment for GST/QST remittances.

• Details of ITCs/ITRs claimed (with supplier registration numbers).

Keep these organized by fiscal period in both paper and digital format.

Step 2 — Reconcile Before the Audit

Ensure totals on your GST/QST returns match your income-tax revenues and expense accounts.
Perform a GST/QST control-account reconciliation:

• GST/QST collected → matches sales invoices.

• GST/QST paid → matches eligible purchase invoices.

• Net tax → equals filed amount.

Any variance should be explained before auditors find it.

Step 3 — Review Eligibility of ITCs and ITRs

Check that all ITCs/ITRs claimed were for business-related expenses. Disallow items such as:

• Personal meals or entertainment.

• Vehicle expenses without mileage logs.

• Expenses lacking valid supplier tax numbers.

Step 4 — Prepare Your Explanations

Auditors often ask:

• How do you calculate GST/QST each period?

• What accounting software do you use?

• How do you separate personal and business expenses?

Prepare concise, factual answers supported by documentation.

Step 5 — Communicate Professionally

Reply to audit notices within the stated deadline (usually 15 days).
Always keep copies of correspondence.
If you need more time, Mackisen CPA can request an extension professionally and provide interim documentation to show cooperation.

Step 6 — Involve Your CPA Early

Having a CPA correspond directly with Revenu Québec or CRA often shortens the audit and prevents misunderstandings. Your CPA can interpret requests, prepare reconciliations, and defend your positions based on law and jurisprudence.

Learning Insight

Auditors respect businesses that are transparent, organized, and represented by professionals. Cooperation, not confrontation, is the key to quick resolution.

During the Audit

• Provide only the documents requested.

• Never alter or backdate records.

• Keep copies of everything you submit.

• Request all questions in writing to maintain a clear record.

• Document each meeting date, time, and auditor’s name.

Learning Insight

Most disagreements arise from missing context, not fraud. Having your CPA explain the reasoning behind figures can prevent unnecessary reassessments.

After the Audit

Auditors will issue a proposal letter summarizing adjustments. You generally have 21 days to respond. If you disagree, your CPA can:

1. Provide additional documentation.

2. File a written objection with legal references.

3. Request administrative review or taxpayer relief.

Keep all correspondence, assessments, and proof of payment.

Common Errors That Trigger Reassessments

• Missing invoices or supplier tax numbers.

• Claiming personal expenses as business ITCs/ITRs.

• Inconsistent figures between GST/QST and income-tax returns.

• Unreported cash or e-commerce sales.

• Late filing with repeated refund claims.

Learning Insight

The CRA and Revenu Québec now access electronic banking data to cross-verify deposits. Unreported revenues are detected faster than ever.

Compliance Checklist

Do

• Keep six years of records, both digital and paper.

• Reconcile GST/QST accounts monthly.

• Verify supplier registration numbers.

• Keep proof of GST/QST payments and refunds.

• Involve a CPA before, during, and after an audit.

Don’t

• Ignore audit notices.

• Provide incomplete information.

• Wait until auditors arrive to reconcile accounts.

• Discuss numbers verbally without written backup.

• Assume small businesses are exempt from audits.

Real Business Example

A Quebec construction firm was selected for a routine audit after large refund claims. Because its CPA maintained monthly reconciliations, it provided all documents within five days. The audit closed without adjustments. Another company delayed responding and faced $12,000 in penalties for missing documentation.

Lesson: preparation is protection.

Mackisen Strategy

Mackisen CPA Montreal keeps clients audit-ready year-round through:

1. Monthly GST/QST reconciliations and documentation reviews.

2. Electronic audit-file organization by fiscal period.

3. Legal-reference letters and CPA correspondence with auditors.

4. Defense strategy based on fairness and proportionality under the Civil Code of Québec.

Our goal: no surprises, no stress, and no unnecessary penalties.

Why Mackisen

With over 35 years of combined experience in tax compliance and audit defense, Mackisen CPA Montreal protects Quebec businesses before, during, and after Revenu Québec or CRA audits. We ensure your books are organized, filings are consistent, and your rights are respected under law.