Turning a GST Audit into a Refund

A Montreal consultant expected a stressful audit when CRA selected her for a GST review. Instead, with the right professional help, the audit ended not with a reassessment but with a refund. What began as a potential financial crisis transformed into a significant cash-flow boost and a clean compliance record.

This success story reveals how the audit was handled, the mistakes uncovered, and how proactive CPA intervention flipped the outcome in the client’s favour.

The Problem

The client, a self-employed consultant, received a CRA notice stating that:
• her GST filings were inconsistent
• her input tax credits (ITCs) were unusually high
• deposits did not match reported sales
• several invoices were missing or incomplete

She feared penalties, additional taxes, and months of stress.

The Audit Begins

The auditor requested:
• detailed sales records
• bank statements
• invoices for all claimed ITCs
• contracts with clients
• reconciliation of deposits to sales
• explanations for discrepancies

At first glance, the audit revealed several issues:
• personal expenses mixed into business accounts
• missing software invoices
• incorrect GST tax coding in her accounting app
• double-counted expenses
• inconsistent reporting across periods

The auditor initially believed ITCs had been overclaimed.

How Mackisen Changed the Outcome

Step 1 — Full Documentation Cleanup

Mackisen collected and organized:
• missing digital invoices
• supplier receipts
• all proof of payment
• corrected ITC schedules
• contracts supporting taxable activities

The paperwork, once scattered, became audit ready.

Step 2 — Correcting Bookkeeping Errors

The team discovered:
• duplicate expenses that had inflated income
• accidental omission of legitimate business expenses
• underclaimed ITCs from earlier periods
• bank deposits misclassified as revenue

Correcting these errors changed the tax picture entirely.

Step 3 — Identifying Auditor Assumptions

Mackisen clarified that:
• several deposits were reimbursements, not taxable sales
• certain expenses were legitimate business tools
• cloud software invoices had GST but were not recorded properly
• earlier returns understated credits
• new ITCs were owed to the client

Step 4 — Strategically Presenting the Case

The CPA provided:
• a structured, indexed audit binder
• reconciliation documents
• a period-by-period ITC analysis
• explanations tied directly to GST legislation

This clarity made the auditor’s job straightforward and favourable.

The Outcome

The final audit result:
• no GST owing
• no penalties
• no adjustments
• the client received a refund
• CRA closed the file with no further action

A stressful audit turned into a positive financial outcome.

Key Lessons

• Even messy records can be corrected with professional support
• CRA auditors often misunderstand deposits
• Missing invoices can be recreated or reissued
• ITCs can be underclaimed without realizing it
• Refunds are possible even during an audit

Real Client Feedback

“I was terrified when CRA contacted me. Mackisen cleaned everything, explained the law, and turned the audit into a refund. I couldn’t believe the outcome.”

Common Questions

Can an audit really result in a refund?
Yes. If credits were underclaimed or expenses misclassified.

What if I made mistakes across several returns?
They can be corrected even during an audit.

Can CRA deny ITCs because of missing invoices?
Yes, unless they are reissued or properly documented.

Is it risky to challenge an auditor?
Not with solid documentation and CPA support.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps clients turn around GST/HST audits, recover lost credits, and maintain clean compliance.