If you run a small business in Ontario and collect HST, CRA can audit your HST filings at any time. HST audits are common, and they do not just target large businesses. Restaurants, contractors, auto shops, and retail stores are all frequent targets.

Here is what you need to know to stay prepared.

What CRA looks for in an HST audit

CRA checks three main things:

  1. Did you collect HST on all taxable supplies? If you sold taxable goods or services and did not charge 13% HST (in Ontario), CRA will assess the uncollected amount plus interest and penalties.
  2. Are your Input Tax Credits (ITCs) legitimate? ITCs are the HST you paid on business purchases that you claim back on your HST return. CRA will verify that you have valid invoices showing the supplier’s name, GST/HST number, the amount of tax charged, and a description of the goods or services.
  3. Do your HST filings match your income tax return? CRA compares the revenue on your HST returns to the revenue on your income tax return. If there is a gap, they will ask why.

Common triggers for HST audits

  • Large or frequent ITC claims relative to revenue (especially refund claims)
  • Revenue on your income tax return that does not match your HST filings
  • Operating in a cash-heavy industry (restaurants, construction, retail)
  • Random selection as part of CRA’s audit program
  • Changes in filing patterns (sudden drop in revenue or spike in ITCs)

The $30,000 threshold

If your business revenue is under $30,000 over four consecutive calendar quarters (or a single quarter), you are a small supplier and do not need to register for HST. But if you exceed this threshold and are not registered, CRA will assess HST on all taxable sales retroactively. This catches a lot of growing businesses off guard.

Once you are registered, you must file HST returns on time, even if you owe nothing.

Record-keeping requirements

CRA requires you to keep all business records for at least six years. For HST purposes, the key documents are:

  • Sales invoices showing HST collected
  • Purchase invoices showing HST paid (must include the supplier’s GST/HST registration number for ITCs over $30)
  • Bank statements and deposit records
  • Point-of-sale records and cash register tapes
  • Credit card processing statements

For ITCs, the documentation rules are strict. If the purchase is over $30 but under $150, the invoice must show the supplier’s name, GST/HST number, the date, the total amount, and the tax charged or a statement that it is included. Over $150, it must also show your name (or your business name) and the terms of payment.

Quick and Simple Method

If your annual taxable revenue (including zero-rated supplies) is $400,000 or less, you may qualify for the Quick Method of accounting for HST. Instead of tracking ITCs on every purchase, you remit a flat percentage of your HST-included revenue (the rate depends on your industry). This simplifies record-keeping but is not always the best option financially. Run the numbers both ways before choosing.

How to stay audit-ready

  • Reconcile your HST returns to your accounting records every quarter.
  • Make sure every ITC claim has a valid supporting invoice.
  • Keep business and personal expenses separate.
  • File on time. Late filings attract interest and draw attention.
  • If you use the Quick Method, make sure you are still eligible each year.

What to do if CRA contacts you

Do not respond without reviewing the request carefully. CRA will specify which periods they are reviewing and what documents they need. Provide exactly what is asked, organized by period. If you are missing invoices, contact your suppliers for copies before responding.

L&R Accounting helps Ontario small businesses with HST filings, record-keeping, and audit support. If you want to make sure your HST is in order, reach out for a review.

Geetha Srinivasan, CPA (Ontario), CPA (US)
L&R Accounting Services Ltd.