Illustrative example based on the kinds of matters we handle — not a specific client engagement; outcomes depend on the facts.
The situation
A self-employed contractor running a small renovation and trades business came to us after a GST/HST audit went badly. The contractor had been a registrant for years, charged and remitted HST on customer invoices, and claimed input tax credits (ITCs) for the HST paid on materials, subcontractors, fuel, and tools. None of that was unusual. The trouble started when the Canada Revenue Agency selected the HST account for review and asked for supporting documentation.
Like many busy trades operators, the contractor had run the business out of a truck and a phone. Receipts were faded thermal-paper slips, a shoebox, and a personal email inbox, and a meaningful chunk of subcontractor payments had gone out by e-transfer with little more than a text message to show for them. The bookkeeping had been done after the fact by reconstructing totals from the bank account rather than from source documents.
The challenge
The CRA auditor disallowed a large share of the claimed ITCs. The core problem was not that the expenses were fake — most were plainly real business costs — but that the documentation did not meet the prescribed information requirements for claiming an ITC. For HST that a registrant has actually paid, the rules require specific details on the supporting document (such as the supplier's GST/HST registration number above certain dollar thresholds, the amount of tax, the date, and a description of what was supplied). Where those details were missing, the auditor took the position that the credit simply could not be claimed, regardless of whether the underlying purchase happened.
The result was a reassessment that clawed back ITCs across multiple reporting periods, layered on arrears interest, and — because the shortfall was significant — raised the prospect of penalties. For a contractor with thin margins and ongoing supplier obligations, an HST reassessment of that size threatened the business, not just the paperwork.
The contractor's instinct, understandably, was to argue that "the money obviously went out the door." But on a GST/HST file, sincerity and bank statements alone often do not carry the day. The credits had to be substantiated in a form the rules recognize.
How we approached it
We treated the matter first as a documentation-reconstruction project and second as a legal dispute, because on this kind of file the two are inseparable. Our approach included:
- Triaging the disallowed credits period by period, separating items that were genuinely unsupportable from items where the supporting information existed but had not been gathered or presented to the auditor.
- Rebuilding the paper trail from the source up. We worked with the contractor to obtain replacement invoices and statements directly from suppliers and subcontractors, confirm registration numbers, and match payments to specific jobs and inputs rather than to lump-sum bank totals.
- Confirming registration status of the larger subcontractors so the HST in their charges could properly be claimed, and identifying which smaller suppliers fell under the simplified documentary thresholds.
- Filing a Notice of Objection within the deadline, then presenting the reconstructed records to the Appeals officer in a period-by-period schedule that tied each recovered credit to compliant documentation.
- Framing the penalty exposure as a recordkeeping shortfall by an otherwise compliant registrant who had charged and remitted HST in good faith — not an attempt to claim credits that were never incurred.
Throughout, we kept the focus on what the rules require to support an ITC rather than on the understandable frustration that the expenses were "obviously" real — the discipline that usually moves a GST/HST objection forward. You can read more in our guide to denied input tax credit disputes.
The outcome
By the close of the objection, a substantial majority of the originally disallowed input tax credits had been reinstated, with the associated arrears interest reduced accordingly as the underlying balance came down. A smaller residual amount — credits that could not be substantiated to the required standard even after reconstruction — was conceded, because pursuing unsupportable claims would not have served the contractor. The penalty exposure was addressed as part of the resolution.
What can happen on a matter like this is that careful reconstruction converts a frightening reassessment back into something close to the registrant's original filed position — recovering most of the disputed credits without the cost and delay of litigation. Where an objection does not resolve the dispute, the next step is an appeal to the Tax Court of Canada; in this illustrative matter, that step was not needed.
The takeaway
On a GST/HST file, the question is rarely "did you really spend the money" — it is "can you prove the tax in the form the rules require." Input tax credits denied for inadequate documentation can often be recovered, but recovery depends on rebuilding compliant records from source documents, not on arguing the expenses were obviously legitimate. The earlier reconstruction starts — ideally before the audit closes, and certainly before the objection deadline passes — the more of the credit base you can usually preserve.
If your HST credits have been challenged, our pages on GST/HST audits and disputes and audit representation explain how these matters unfold and how representation can help.
This is an anonymized, illustrative example and not legal advice. Results vary with the facts of each matter; nothing here is a prediction or assurance of any particular outcome in your case.