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Sales Tax

What happens in a sales tax audit and how do you dispute an assessment?

Sales tax assessments hurt businesses disproportionately because the amounts are trust funds you collected on the government's behalf — directors can be personally liable, and the CRA treats them more aggressively than ordinary tax debt. Most assessments come down to denied input tax credits, unregistered supplies, or documentation that does not meet the prescribed requirements.

What to do next

  1. Identify the basis of the assessment

    Denied input tax credits, unreported taxable supplies, incorrect place-of-supply treatment, or zero-rating claimed without supporting evidence. Each is answered with different records.

  2. Fix the documentation problem

    Input tax credits require prescribed information — supplier registration numbers among them. Many denials are documentary rather than substantive and can be resolved by obtaining compliant invoices.

  3. Object within the deadline

    The notice states the period. Quebec administers QST through Revenu Québec, so a Quebec business may face parallel federal and provincial assessments requiring separate objections.

  4. Address director liability early

    Because sales tax is a trust amount, directors face personal exposure for unremitted GST/HST or QST. Due-diligence defences exist but depend on what you actually did at the time.

Frequently asked questions

Why were my input tax credits denied?

Frequently for documentation — invoices lacking prescribed information such as the supplier's registration number. That is often fixable by obtaining compliant invoices.

Am I personally liable as a director?

Potentially, because sales tax is a trust amount. A due-diligence defence exists but turns on the steps you actually took at the time, so contemporaneous records matter.

Do I object to the CRA or Revenu Québec?

Depends which tax. QST is administered by Revenu Québec; GST/HST federally — and Quebec businesses may need to object to both.

Should I keep charging tax during a dispute?

Yes. Stopping collection or remittance creates a new and worse problem. Dispute the assessment separately.

This is general information, not legal advice. Laws vary by location and every situation is different — speak with a qualified lawyer about your specific circumstances.

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