What to expect and do to pass a GST/HST Audit or Review!

Last Blog Post we discussed GST/HST audits and how to avoid them! But what are some things you can do if you find yourself in a GST/HST Audit or Review situation?

1. Approach it with the right attitude: GST/HST is dollar for dollar important: Our tax dollars! If GST/HST is not correctly remitted and reported by our business neighbours, it ends up costing tax payer money, and taking government funds away from things that are important to us. Consider if your business neighbour was incorrectly claiming thousands of dollars of GST/HST back from CRA that was not rightly theirs. If it's intentional, they should be stopped. If it's accidentally, then they should be corrected. CRA has to find those things, and checking your work is part of that effort. As a business owner, it is your responsibility to be ready to supply the details and support of the numbers you filed with CRA. And that's all you need to do. CRA isn't out to 'get you'. CRA is simply out to make sure the correct numbers are being filed, period. And as a business owner... you have the SAME GOAL! You also want the correct numbers to be filed with CRA! Same goal! Sure, the approach is slightly different; CRA doesn't want you to get back more than you should, you don't want to get back less than you should. But at the end of the day, we are on the same team with the same goal; what is filed should be correct. Understanding that you are on the same team as the auditor is a huge help, because you can literally ask them "what specifically do you need to see" and they will give you specific and actionable answers. Don't be intimidated or anxious. If you've made a mistake somewhere, then it just gets corrected. You may owe because of a mistake you've made. But if you've taken your bookkeeping seriously, and followed the advice of my previous hacks newsletter, there shouldn't be anything major of concern.​
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2. Make it easy for the Auditor to Understand: Approach everything you are submitting as if you were the auditor; what would YOU need to understand and feel confident in the numbers?
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   The auditor is looking for a list. If you claimed $45,000 in sales, and $4,950 in GST/HST collected, then you need to be able to show the details. A list of each invoice with the date, customer name, sales type, and amount of GST/HST collected is required. The numbers in the list needs to add up to the numbers filed. (By 'sales type' what I am referring to is, if you have different products/services subject to different taxes, be sure to note that. Honey sales is zero rated. Sales to Alberta are at 5% GST. Sales to the US are zero rated. Etc). Be aware that paid date is not the same as invoice date. These lists you should be able to download directly from your bookkeeping software. Ideally you have them saved from when you filed the GST/HST return. (QBO, for example, saves a 'snapshot' of these details, so if items are added to the period later, you still have the list of numbers you filed with for CRA if audited). If your business is not the type that 'invoices' clients, (perhaps a store with a register or an e-commerce operation), be sure that the reports you provide from your register or software breaks out important details such as gift cards sold (not technically sales, just a promise to provide goods and services in the future), tax collected, etc.
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   It is the same approach now for the credits you have claimed. (These are called "ITCs, or, "Input Tax Credits"... aka GST/HST paid on expenses). If you claimed $2,459.69 in GST/HST paid on expenses, you will need to list out every bill and receipt that comprises that amount: Bill date, supplier name, bill total, and GST/HST amount. Again, paid date is NOT the bill date. (Bills can be paid on their bill date, but that's not always the case). You should be able to provide on demand any bill or receipt listed on that list with the matching date and amount that is on the list. So, if you claimed HST on a 'payment on account', be prepared for a lot of extra work!!! Because now you have to prove what bills that $5k was applied to and provide those! Which is the wrong way to go about bookkeeping and thus why it's not easy to have in a GST/HST audit. This is why we enter the bills and their payments into our bookkeeping, not just the payments as if they were the expense themselves (aka cash accounting). Just backing GST/HST out of payment transactions means you're gonna have a bad time in an audit situation. (Typing that inspired a meme now added below). And those physical or pdf bills should all have the the GST/HST amount listed out with the GST/HST number of the vendor showing. If they don't have a GST/HST number on them, ask the vendor for a re-print of the bill with the correct GST/HST amount and their GST/HST number. The bigger the bill, the more CRA will want to see it. So, during the year, BEFORE you are audited, that's when you need to make sure you are not missing any of these bigger bills, and that they ALL have a GST/HST number on it! (Refer to my last hack "you gotta see it to believe it").
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3. Vehicle Log!!!: If you use your business vehicle for 100% business, you don't have to keep a vehicle log forever... but you do have to support the 100% business use. So keep a vehicle log for three months with a photo of the starting odometer and a photo of the ending odometer (or from oil change to oil change with the odometer on the bill). Keep this vehicle log as a reference for when you are reviewed. This is even more important to do when you buy a new work truck, and your usual GST/HST payable turns into a refund. CRA is gonna want to take a closer look at that... be ready! If you use your vehicle for less than 90% for business, you need to keep that vehicle log on an ongoing basis, and only claim the correct percentage of GST/HST on your vehicle expenses. Too late? In an audit with no vehicle log? You have receipts with dates. You have client invoices with dates. You have a couple of vehicle maintenance bills. You have google maps! You have enough clues to put together a 3 month vehicle log! Make one!
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4. Communicate, meet deadlines, ask for help, and if needed, object!: I couldn't choose my three favorite hacks on this subject, so, the last few are pretending to be #4! Firstly, always communicate with the auditor. You're working together... if you ghost them, they may just go with what they have and disallow the rest. So keep the communication going, and always meet those deadlines. Get their name right and don't lose their phone number. If you have a hard time understanding what is being requested, ask that it be written out in a letter and sent to you. Sometimes the 'lingo' is familiar to us in this space and we forget that it's not as familiar to others, so feel free to reach out to your bookkeeper or accountant to help work with you on the requests, they may have an easier time understanding the asks. Lastly, if there are things that you feel were disallowed incorrectly (either because the CRA auditor made a wrong call, or perhaps the paperwork didn't make it in on time), OBJECT! File an objection right away. (And *I* just got my idea for my next YouTube video! How to file an objection with CRA!) You have 90 days to file an objection, so don't delay. Pay any tax bill that arises from the audit, because if the objection is accepted, the money will be returned to you. But if the objection is only partially accepted, not only are you incurring interest, CRA collections will be bugging you for the funds in the meantime, and objections take forever (think 8 to 16 months!). So clear up the bill, and object to get it back.