Surviving a GST/HST Audit – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Receiving a GST/HST audit letter from the Canada Revenue Agency (CRA) can be one of the most stressful moments for any business—whether you are self-employed, incorporated, selling online, or providing services across provinces. GST/HST audits are not random. They are triggered by discrepancies, documentation issues, industry-specific red flags, or inconsistencies between your GST/HST filings and your income tax returns. During an audit, CRA will review every invoice, receipt, bank deposit, and input tax credit (ITC) claim. If your documentation is incomplete or your tax calculations are inaccurate, CRA can reassess several years of filings, charge interest, deny ITCs, and impose penalties. Understanding how to survive a GST/HST audit in Canada is essential to protecting your business and avoiding costly mistakes.

Legal and Regulatory Framework

GST/HST audits are conducted under the authority of the Excise Tax Act, which allows CRA to:

• inspect and audit books and records (section 288)
• demand documents and information (section 289)
• reassess net tax owing for any period within the normal reassessment window
• charge interest on unpaid GST/HST
• impose penalties for missing or inaccurate filings
• deny ITCs when documentation does not meet regulatory requirements

CRA requires businesses to maintain six years’ worth of complete records, including:

• invoices (with GST/HST numbers)
• receipts
• contracts
• bank statements
• sales summaries and POS reports
• mileage logs for vehicle-related ITCs
• bookkeeping ledgers
• ITC supporting documentation

These laws define CRA’s powers and your obligations during a GST/HST audit.

Key Court Decisions

Courts have consistently supported CRA’s strict approach to GST/HST compliance.

In Cornwallis Financial Corp. v. Canada, the court upheld CRA’s denial of ITCs due to missing invoice details, confirming that documentation must be complete and compliant.

In Global Cash Access v. Canada, CRA reassessed GST/HST on misclassified taxable vs. exempt services; the court affirmed CRA’s interpretation.

In Air Canada v. Canada, the Supreme Court ruled that GST/HST is a strict liability tax, making businesses responsible for tax whether or not they charged it correctly.

In Turmel v. Canada, CRA used bank deposits and incomplete records to reassess GST/HST, with the court agreeing that indirect audit methods are allowed when documentation is insufficient.

These rulings highlight the importance of meticulous records and precise GST/HST filings.

Why CRA Targets This Issue

CRA selects businesses for GST/HST audits when:

• ITCs appear unusually high
• documentation is incomplete or missing
• sales reported in GST/HST filings do not match income tax returns
• businesses use the Quick Method incorrectly
• GST/HST has been collected but not remitted
• returns have not been filed for multiple periods
• business expenses include personal items
• interprovincial sales tax rules appear inconsistent
• inventory, e-commerce, or digital sales do not reconcile with deposits

CRA also receives data from:

• Stripe, PayPal, Square
• Shopify, Amazon, Etsy
• provincial revenue agencies
• e-commerce platforms
• financial institutions

Any anomalies flagged by CRA’s automated analytics can trigger an audit.

Mackisen Strategy

At Mackisen CPA Montreal, we guide clients through GST/HST audits with a calm, evidence-based, and strategic approach. Our system includes:

1. Pre-Audit File Review

• reviewing GST/HST returns for discrepancies
• reconciling sales with bank deposits
• verifying all ITCs with valid invoices
• identifying weak documentation areas

2. Preparing Audit-Ready Documentation

• organizing invoices by period and category
• matching receipts to GST/HST returns
• reconstructing missing documents when possible
• preparing explanation notes for any unusual transactions

3. Managing CRA Communications

• responding to CRA audit letters
• meeting deadlines for document submission
• communicating directly with auditors to clarify questions
• preventing misinterpretations that could harm your case

4. Defending ITC Claims

• demonstrating commercial purpose
• providing supplier information and contracts
• showing allocation for mixed-use expenses
• presenting mileage logs for vehicle claims

5. Negotiating Outcomes

• correcting honest mistakes
• reducing penalties through voluntary disclosure (if applicable)
• negotiating payment arrangements when reassessments occur

Our approach dramatically reduces audit risk and ensures the best­ possible outcome.

Real Client Experience

A consultant claimed large ITCs for travel and meals without receipts. CRA denied them. We reconstructed missing documentation using bank statements, digital receipts, and supplier confirmations—recovering about 70% of the ITCs.

A Shopify seller was selected for audit because her GST/HST filings didn’t match platform sales reports. We reconciled Shopify data with deposits and corrected earlier filings, resulting in no penalties.

A construction business failed to keep invoices with GST numbers. CRA denied significant ITCs. We helped retrieve supplier invoices and reduced the reassessment substantially.

A digital services provider mistakenly zero-rated services to Canadian clients, believing they counted as exports. CRA reclassified the sales. We corrected the records and minimized penalties.

Common Questions

Business owners often ask whether CRA provides more time if documents are missing. CRA may allow extensions, but deadlines are strict.
Others ask whether bank statements alone are acceptable documentation. No—CRA requires valid invoices for ITCs.
Some ask whether the Quick Method eliminates audit exposure. No—the Quick Method still requires accurate sales reporting.
Another question: Can CRA audit multiple years? Yes—especially when discrepancies go back several periods.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses survive GST/HST audits with confidence. Whether you need audit preparation, documentation support, or direct representation, our team ensures precision, professionalism, and full protection from CRA reassessments.