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

A call or letter saying the CRA wants to review your GST/HST return can be unsettling, especially if you claimed input tax credits and are not sure your paperwork is complete. An audit generally moves through stages: the auditor contacts you by mail or phone, then examines your records on site or at a CRA office.

This article explains how CRA business audits generally work, what records auditors tend to ask for, why timing varies, and what happens after the audit. GST/HST has its own rules and deadlines that sit outside the general audit material described here, so confirm the specifics for your file with a lawyer or accountant.

This article covers Canadian federal tax law, which applies in every province.

How a CRA audit usually begins

For business audits, the auditor usually phones first, and a confirmation letter follows. If you are unsure who is calling, you can hang up and call back to confirm their identity.

The auditor will normally ask for electronic records before meeting you. Audits can also take place at your residence, place of business or your representative's office, and the auditor presents valid identification on arrival. The auditor may ask employees who make the accounting entries about how the business operates.

The CRA describes three possible outcomes: no change, a reassessment that results in more tax owing, or a refund.

Documents to gather for input tax credit claims

Input tax credits are only as strong as the paper behind them. The records auditors request include ledgers, journals, invoices, receipts, contracts and bank statements. The exact documentary requirements for an input tax credit come from the GST/HST rules themselves, so ask your accountant what each claim needs.

• Sales and purchase ledgers and journals for the period under review
• Supplier invoices and receipts that support each claim
• Contracts with customers and suppliers
• Bank statements that tie the entries to real payments
• Electronic copies in a readable format, since computer-based records must be kept that way

Books and records must generally be kept for a minimum of six years. If requested records are not provided or are hard to find, delays can result.

How long does a GST/HST audit take?

The CRA gives no fixed audit length. Duration depends on the condition of your records, the scope of the audit, delays from missing records and consultation with other areas of the CRA. Good records and co-operation reduce the time.

Any month range you hear is general experience, not an official standard. A narrow review of one reporting period with organized records is a different task from a multi-year review with gaps in the paperwork.

After the audit: proposal, assessment and disputes

After an audit you generally have 30 days to agree or disagree with the auditor's written proposal, which is a summary of the audit findings. That period is CRA administrative practice, not a statutory deadline. Treat it seriously anyway, and ask for more time in writing if you need to gather support.

Before objecting formally, you can contact the auditor and, if that does not resolve things, the auditor's team leader. The auditor can also estimate any amount owing before a notice is issued, which may help limit interest.

The formal objection and appeal deadlines that apply to GST/HST depend on your situation and are not covered by the general audit material here. Read any notice the day it arrives and confirm the deadline with a lawyer or accountant, because missing it can close off your options.

What to do next

You are allowed to choose a person to represent you and to get advice on your tax affairs, though you remain legally responsible. The Taxpayer Bill of Rights also lists courteous and fair treatment and confidentiality of your information among its 16 rights. It is a set of principles rather than directly enforceable rights.

• Confirm the call is genuine by calling the CRA back, then keep the confirmation letter.
• Note every deadline in the letter and every request for records.
• Collect the records for the period under review before the auditor asks.
• Do not guess at answers you are unsure of; say you will check and follow up.
• Speak with a lawyer or accountant before agreeing to the proposal or sending a large volume of records.

Frequently asked questions