CRA GST/HST Audit: What to Expect and How to Prepare

Why CRA Audits Your GST/HST Returns

The CRA selects returns for audit based on several factors:

• Risk scoring: Unusual patterns like large ITC claims relative to revenue
• Industry profiles: Some industries (construction, real estate, used vehicles) have higher audit rates
• Referrals: Issues found during income tax audits may trigger GST/HST review
• Random selection: A percentage of returns are randomly selected

The Audit Process

Phase 1: Initial Contact

You'll receive a letter identifying:

• The periods under review
• The auditor's name and contact information
• A list of records to prepare

Phase 2: Document Review

The auditor will examine:

• Sales records: To verify you collected the correct amount of GST/HST
• Purchase records: To verify your ITC claims are supported
• General ledger: To trace tax amounts through your accounting system
• Bank statements: To reconcile reported figures

Phase 3: ITC Verification

This is where most adjustments happen. The auditor checks:

1. Registration validation: Is each supplier's GST number valid?
2. Documentation tiers: Do invoices have all required information for the amount?
3. Commercial use test: Were purchases used in commercial activities?
4. Restricted items: Were ITCs claimed on meals, entertainment, or other restricted categories?

Phase 4: Assessment

The auditor issues a proposal letter with adjustments. You have the right to:

• Provide additional documentation
• Dispute findings before the assessment is finalized
• File a Notice of Objection within 90 days if you disagree

How to Prepare

Before the audit:

1. Run your AP data through an automated ITC review to catch issues before the auditor does
2. Verify all supplier GST numbers at the CRA's online registry
3. Ensure invoices over $150 have complete Tier 3 documentation
4. Reconcile your GST returns to your general ledger

During the audit:

1. Designate one person as the auditor's contact
2. Provide only what's requested — don't volunteer additional information
3. Keep copies of everything provided to the auditor
4. Note any verbal statements the auditor makes about their findings

Common Audit Adjustments

Proactive Protection

Our engine detects the exact issues CRA auditors look for:

• Type 17: Missing GST/HST registration numbers
• Type 18: Tier 3 documentation gaps
• Type 22: Tax posted to wrong GL accounts

Running your AP data through Input Recovery before an audit is like getting a practice exam with the answer key.