GST/HST compliance is a cornerstone of running a business in Canada. From filing HST returns to claiming input tax credits (ITCs), staying on top of your tax obligations is essential.
But even when you’re doing your best to stay compliant, a GST/HST audit from the Canada Revenue Agency (CRA) can happen. These audits aim to ensure businesses meet their tax obligations, but they can feel overwhelming if you don’t know what to expect.
This guide will walk you through the GST/HST audit process, explain common CRA audit triggers, and offer practical advice to help you confidently prepare and manage an audit.
Understanding GST/HST Audits
What is a GST/HST Audit?
Think of a GST/HST audit as a detailed check-up on your tax filings. The CRA reviews your business’s records to confirm you’re correctly collecting, reporting, and remitting GST/HST.
During the audit, they’ll review your sales records, invoices, ITC claims, etc. Essentially, they want to ensure your tax preparation and filings align with Canada’s tax laws.
Purpose of the Audit
A GST/HST audit aims to verify compliance and catch any discrepancies in your records. It’s part of the CRA’s effort to keep the tax system fair and consistent for everyone.
For businesses, these audits can highlight areas for improvement, helping you avoid issues in the future while demonstrating your commitment to meeting business tax obligations.
Common Triggers for a GST/HST Audit
Knowing what could prompt the CRA to take a closer look at your business is half the battle. Here are some of the most common CRA audit triggers:
Inconsistent Filings
When the numbers on your GST/HST returns don’t match other financial statements—like your corporate tax filings—it raises a red flag. Simple mistakes or rushed tax preparation can lead to these inconsistencies, so regular record checks are a must.
Unusual Claim Patterns
The CRA might investigate if your ITC claims seem unusually high compared to your business activity. While claiming legitimate ITCs is part of GST/HST compliance, anything out of the ordinary can draw attention.
Industry Benchmarks
The CRA compares your business’s figures to others in your industry. If your numbers are significantly different—for example, if your taxable sales are much lower than what’s typical—it might lead to an audit.
Random Selection
Sometimes, audits happen randomly. The CRA conducts these to ensure general compliance across all businesses. Even if there’s no specific trigger, staying prepared is essential.
The GST/HST Audit Process
Notification
The audit process starts with a notice from the CRA, which outlines what’s being audited and what documents you’ll need to provide. These notifications are sent by mail or your MyCRA Business Account mailbox and can come from either the Trust Examiner or the CRA’s GST/HST Compliance team; responding quickly is critical to avoid delays or penalties.
Preparation
Preparation is key to smoothly navigating a GST/HST audit. Gather all the necessary documents, including:
- Your GST/HST returns for the period being audited
- Sales and purchase records
- Receipts and bank statements
- ITC documentation
Having your paperwork organized not only shows the CRA you’re serious about compliance but also makes the process quicker and easier for everyone involved.
ALSO READ: 5 Steps to Best Prepare for Corporate Tax Season
On-Site Examination
In many cases, auditors will visit your business to review your records and ask questions. They might cross-check your sales data with your ITC claims or look for gaps in your tax preparation.
Cooperating with the auditors and being transparent about your processes goes a long way in ensuring a smoother audit experience.
Post-Audit Procedures
After the audit, the CRA will share their findings with you. This could include adjustments to your tax filings, additional taxes owed, or even penalties.
If you disagree with the results, you have the right to appeal. Reviewing the findings carefully with a tax professional can help you decide on the best course of action.
How to Prepare for a GST/HST Audit
Maintain Accurate Records
Keeping your financial records clean and organized is essential for GST/HST compliance. Whether you use accounting software or hire professionals, make sure every transaction is documented correctly.
Good records make tax preparation easier and provide the evidence you need to back up your claims during an audit.
Regular Compliance Reviews
Set aside time to review your GST/HST filings periodically. These reviews can help you catch errors early and ensure you’re meeting your business tax obligations.
Seek Professional Guidance
You’re not alone if GST/HST regulations feel like a maze. Tax professionals, like the team at Stratos Accounting & Consulting, specialize in making sense of these rules. We can help with everything from filing your HST return to preparing for audits.
Steps to Take After an Audit
Review Findings
When the CRA shares their audit findings, don’t rush through them. Take your time to compare their conclusions with your records. If something doesn’t add up, seek clarification.
Dispute Resolution
If you believe the CRA’s findings are incorrect, there’s a formal appeals process you can follow. A tax professional can guide you through this, helping you present your case effectively.
Implement Recommendations
Sometimes, the CRA will suggest ways to improve your record-keeping or reporting. Taking these recommendations seriously can reduce your chances of being audited again in the future.
Seek Expert Guidance on GST/HST Audits
GST/HST audits don’t have to be a nightmare. With proper preparation and support, you can confidently navigate the process.
At Stratos Accounting & Consulting, we support businesses like yours stay compliant, reduce risks, and handle audits efficiently. We will manage the entire communication with the CRA during an audit. This includes responding to CRA communications on time, preparing robust submissions to defend your GST/HST return and addressing follow up requests.
This way, you can focus on running your company while we entirely mitigate the potential risk of CRA rejecting your claimed ITC’s and prevent you from incurring interest and penalties.
Ready to take control of your GST/HST compliance? Contact Stratos Accounting & Consulting today and let us help you protect your business.
If you want to reduce the chances of getting audited by the CRA or need professional advice for your taxes, expenses or other deductions, Stratos Accounting & Consulting is your professional choice for dedicated, personalized, customized services.
We strive to provide our clients with exceptional customer service and always be available to answer questions and provide guidance. Our experienced professionals work closely with our clients to understand their unique needs and objectives and develop solutions tailored to their specific situations.
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Contact Stratos Accounting & Consulting today at 416-477-4775 or fill out our convenient online form to learn more about how Stratos can help your business soar.