Why Is My GST Refund Being Held by the CRA?

Many businesses especially consultants, startups, contractors, online sellers, and corporations with high expenses file a GST return expecting a refund, only to discover that the Canada Revenue Agency (CRA) has put the refund on hold. This can create cash flow stress, delays, and confusion. Refund holds are common and usually triggered by routine verification steps, but sometimes they indicate deeper compliance issues.

This guide explains the most common reasons why CRA holds GST refunds and what steps you should take to resolve the situation quickly.

1. Verification of Input Tax Credits (ITCs)

The most common reason for a hold is that CRA wants to verify your ITCs, which represent the GST you claim back on business expenses.

CRA may request:
• invoices and receipts
• proof of payment
• contracts
• bank statements
• supplier GST numbers
• general ledger entries

Missing documentation is the one reason refunds are denied or delayed.

2. Sales–Deposit Mismatches

CRA compares:
• reported sales
• bank deposits
• merchant processor reports

If deposits exceed recorded revenue, CRA may suspect unreported income and hold the refund until the discrepancy is explained.

3. Large Refund Relative to Revenue

If you claim:
• high expenses
• low sales
• or zero-rated exports

CRA may want proof that the expenses were real and relate to commercial activity.

This is common for:
• startups
• new freelancers
• e-commerce stores
• exporters

4. New GST Registrant Under Review

If you recently registered for GST:
• your first refund may be held
• CRA needs to validate your business activity
• this prevents fraudulent refund claims

New businesses experience this frequently.

5. Missing or Incorrect Filing Information

Refund holds may be triggered if:
• returns are incomplete
• lines are miscalculated
• GST numbers are incorrect
• tax periods do not match

Small errors can delay refunds by weeks.

6. Outstanding Balances on Your CRA Account

If you owe:
• payroll deductions
• corporate tax
• GST from another period
CRA may apply your refund to the balance or freeze it.

7. Prior-Year Compliance Issues

CRA may hold your refund if:
• past returns were late
• past verifications were unresolved
• previous adjustments were made
• CRA is still assessing another period

Refunds are often held to ensure compliance.

8. Suspected Ineligible ITCs

CRA denies or reviews ITCs for:
• personal expenses
• mixed-use expenses
• missing invoices
• non-registered suppliers
• expenses not tied to commercial activity

If CRA suspects problems, the refund is held.

9. Random or Risk-Based Selection

Some refunds are held simply because:
• your business falls within a risk category
• the amount is unusually high
• industry patterns show common errors

Random verification is normal and does not mean wrongdoing.

What You Should Do When a GST Refund Is Held

Step 1: Check CRA My Business Account

Look for:
• refund hold notices
• requests for documents
• outstanding balances
• processing status

Step 2: Prepare Documentation

Gather:
• invoices
• receipts
• GL listings
• proof of payment
• contracts
• customer/supplier lists

Step 3: Respond to CRA Quickly

Delays in response = longer refund hold.

Step 4: Correct Errors if Necessary

If mistakes were made:
• file adjustments
• correct tax coding
• fix bookkeeping errors

Step 5: Contact CRA Directly or Through Your CPA

A professional can:
• speak with CRA
• clarify issues
• prepare clean documentation
• prevent future holds

Mackisen Strategy

Mackisen CPA helps businesses:
• understand why refunds are held
• prepare audit-ready documentation
• respond to CRA inquiries
• fix ITC errors
• reconstruct books when needed
• prevent refund holds in future filings

Our structured approach ensures faster refund releases and stronger compliance.

Real Client Experience

A new consultant claimed $7,000 in ITCs. CRA held the refund and requested invoices. Mackisen prepared a clean package, and the refund was released in 7 days.

A retailer’s deposits exceeded reported sales. Mackisen reconciled POS and bank statements, resolving CRA concerns.

A startup had missing SaaS invoices. Mackisen obtained duplicates and closed the verification.

Common Questions

How long can CRA hold my refund?
It varies from a few days to several months depending on documentation.

Can CRA deny my refund completely?
Yes, if documentation is missing or ineligible.

Do I need a lawyer?
Not unless CRA escalates to penalties or fraud suspicion usually a CPA is enough.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses resolve refund holds, respond to CRA verification requests, and maintain clean ITC documentation to avoid future delays.