For most business owners, GST/HST sits somewhere near the bottom of the mental priority list. It gets filed, it gets paid, and as long as nobody from the CRA calls, it’s easy to assume everything is fine.
The problem is that most GST/HST issues don’t announce themselves. They build quietly — a transaction coded in haste here, an input tax credit claimed without the right documentation there — until the accumulation is large enough that fixing it isn’t just an administrative task anymore. By then it’s a cash flow problem, an audit risk, or both.
Where the Problems Actually Start
Most GST/HST problems don’t start with a big mistake. They start with a small compromise that becomes a habit. Three areas where this tends to happen most:
1. Input Tax Credits without proper documentation
Claiming ITCs — the GST/HST you recover on business purchases — is legitimate and important. The problem is how those claims get supported. A lot of businesses claim ITCs based on bank statements or credit card summaries rather than actual supplier invoices that include a valid GST/HST registration number.
In a CRA audit, that distinction matters significantly. If the vendor’s registration number isn’t on the invoice, or if it isn’t active, the ITC can be denied and clawed back — with interest — going back up to three years. A business claiming $50,000 in ITCs monthly on documentation that doesn’t meet the standard is carrying an unhedged liability that could reach $1.8M over a three-year audit window.
2. Intercompany transactions handled informally
For businesses operating through multiple related entities — a holdco, an operating company, a management company — the GST/HST treatment of transactions between those entities is an area that gets handled informally more often than it should. Management fees and expense recharges between related companies generally need to have GST/HST properly charged and documented, even when the net effect across the group is zero.
There’s a specific CRA election — called a Section 156 election — that allows certain closely related corporations to treat intercompany supplies as having no consideration, which eliminates the GST/HST obligation between them. But filing that election incorrectly, or not filing it at all while treating the transactions as if it exists, creates a compliance problem that isn’t visible in the consolidated books until an auditor looks at the individual entities separately.
3. Sales platforms that don’t map cleanly to the ledger
For businesses selling through platforms like Shopify, Stripe, or Amazon, the GST/HST reported on those platforms doesn’t always match what ends up in the accounting ledger — and the gap is rarely zero. Rounding differences, foreign exchange conversions, timing differences between when a sale occurs and when it settles, returns and refunds processed in different periods — all of these create small discrepancies that accumulate. Leaving them unreconciled means the tax return is being filed on numbers that don’t accurately reflect what was actually collected and remitted.
How the CRA Has Changed Its Approach
CRA audits have evolved significantly. The CRA now has the ability to request full digital downloads of accounting records and run its own analysis across the data — looking for patterns and inconsistencies rather than just reviewing a folder of receipts.
What this means practically is that internal consistency matters more than it used to. There’s also a compounding risk worth understanding: if an auditor identifies a 5% error rate in a sample of transactions, they may apply that error rate across all revenue for the entire audit period — up to 36 months. A 5% error rate on a business doing $3M in annual revenue, projected across three years, is a $450,000 assessment before interest and penalties. That’s not a number that comes from a single bad decision. It comes from a process that was slightly off for a long time.
What Good Actually Looks Like
A business with a well-run GST/HST function doesn’t think about it much. The returns get filed on time, the ITCs are properly documented, the numbers reconcile cleanly, and if the CRA ever does ask questions there’s a clear and organized record of everything.
• Every ITC claim is supported by an actual invoice with a valid GST/HST registration number — validated at the point of processing, not retroactively
• Intercompany transactions are treated consistently and documented properly — either with GST/HST charged and filed, or with the appropriate election in place
• Sales platform data reconciles to the ledger monthly — discrepancies caught and explained while they’re small
• Returns are filed on accrual-based numbers — what was earned and collected — rather than bank-based numbers
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