CRA Audit Support for Construction Companies
Construction companies are a top CRA audit target. Subcontractor vs. employee classification, T5018 reporting, cash payments, GST/HST on new housing, equipment CCA, personal use of company vehicles, progress billing and holdback compliance are all under scrutiny. We represent construction companies directly with CRA. From $400. 900+ five-star reviews.
We Defend Construction Companies Against CRA Audits
We have represented hundreds of construction company owners through CRA audits. The construction industry is one of CRA's highest-priority audit sectors because of the volume of subcontractor payments, cash transactions, worker classification issues and the T5018 filing requirement that gives CRA a direct cross-reference tool against every sub you pay. When the numbers do not match, the reassessment arrives fast and it covers income tax, HST and payroll simultaneously.
We handle the entire audit from the moment the CRA letter arrives. We review every document before CRA sees it, respond to every request, attend every meeting and negotiate every reassessment. You do not speak to CRA directly. For a full overview of our audit services, visit our CRA audit resolution services page.
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Why CRA Targets Construction Companies for Audits
| CRA Audit Trigger | What CRA Looks For | How We Defend |
|---|---|---|
| Subcontractor vs. employee classification | CRA reviews whether workers classified as subcontractors should actually be employees. If CRA reclassifies a sub as an employee, the construction company owes all unremitted CPP, EI, income tax withholdings, employer contributions and penalties for the entire reassessment period. A single reclassification of 5 workers over 3 years can produce a $150,000+ reassessment. | We prepare the two-factor test analysis for every worker under review: control test (who directs the work, sets hours, provides tools) and economic dependence test (does the worker have other clients, own equipment, risk profit/loss). We compile contracts, invoices, T5018 slips and evidence of the sub's independent business activity to defend the classification. |
| T5018 Statement of Contract Payments | Construction companies must file T5018 slips reporting all payments of $500 or more to subcontractors. CRA cross-references T5018 amounts against what the subs reported on their T1 or T2. If a sub received $80,000 from you but reported $45,000 in total income, CRA audits both parties. Missing or late T5018 filings trigger automatic penalties and flag the GC for a deeper audit. | We reconcile every T5018 against actual payments, invoices and bank records. We verify that every sub has a valid business number. We file amended T5018s where slips were missed and prepare the documentation trail that shows every payment was made to a registered business. |
| Cash payments to workers or subs | CRA analyzes bank withdrawals, cash expenses and supplier payment patterns. Large or frequent cash withdrawals without matching invoices trigger a cash economy investigation. CRA may also receive tips from workers or competitors reporting cash payments. | We document every cash payment with supporting invoices, receipts and signed acknowledgements. Where gaps exist, we reconstruct the cash trail using bank records, project accounting and material purchase records. We identify legitimate cash expenses (small material purchases, site expenses) and separate them from unsupported amounts. |
| GST/HST on new housing and renovations | CRA audits HST compliance on residential construction: was HST collected on the full selling price, were new housing rebates calculated correctly, was HST self-assessed on owner-built homes, were ITCs claimed only on eligible business expenses? CRA also reviews whether substantially renovated homes were treated as new housing (requiring HST on the full value). | We verify HST on every residential project: new builds, substantial renovations and commercial-to-residential conversions. We reconcile new housing rebate applications (Form GST190) against closing statements. We review ITC claims for dual-use properties (personal vs. business) and correct any errors before CRA identifies them. |
| Equipment CCA claims | CRA verifies that capital cost allowance (CCA) claims on heavy equipment, vehicles and tools are correct: was the asset actually purchased, is the cost supported by invoices, is the CCA class correct, was Immediate Expensing applied properly, is there personal use of the asset? | We prepare a complete CCA schedule with supporting purchase invoices, financing agreements, registration documents and usage logs for every asset. We verify CCA classes (Class 10 vehicles, Class 8 equipment, Class 53 manufacturing) and confirm Immediate Expensing eligibility. Personal use percentages are documented with logbooks. |
| Personal use of company vehicles and equipment | CRA flags construction companies where the owner or family members use company trucks, equipment or tools for personal purposes. A company F-150 driven home every night has a personal use component. A company excavator used on a personal property project is a shareholder benefit. CRA estimates the personal use percentage and adds it as a taxable benefit. | We prepare vehicle logbooks documenting business vs. personal kilometres. For equipment, we prepare usage logs showing project allocation. We calculate the standby charge and operating cost benefit for any personal use and ensure it is reported on the T4 to avoid a reassessment. Proactive reporting eliminates the issue before CRA raises it. |
| Progress billing and revenue recognition | CRA reviews whether revenue is recognized correctly on long-term contracts. The percentage of completion method requires revenue to be recognized proportionally as work is performed, not when the invoice is paid. Construction companies using the cash method on contracts exceeding 2 years can face a full revenue reclassification. | We review the revenue recognition method for every contract: completed contract vs. percentage of completion. We prepare supporting calculations showing the percentage complete at year-end based on costs incurred vs. total estimated costs. We reconcile progress billings against revenue recognized and work-in-progress on the balance sheet. |
| Holdback compliance | CRA verifies that statutory holdbacks (10% in Ontario under the Construction Act) are accounted for correctly: holdbacks receivable from GCs are income when billed (not when released), holdbacks payable to subs are deductible only when the obligation is established. Mismatches between holdback treatment on the T2 and the actual contract terms trigger reassessment. | We reconcile holdback receivables and payables against contract documents, progress certificates and release notices. We verify that holdback income is recognized in the correct period and that holdback payables match the statutory requirements under the Ontario Construction Act. |
Construction Is a Top CRA Audit Sector: CRA has a dedicated Construction Industry Audit Program. The T5018 reporting requirement gives CRA an automatic cross-reference tool that no other industry has. Every payment to every sub is reported to CRA with the sub's business number. If the numbers do not match, both parties are flagged. Combined with worker classification risk, cash transactions and GST/HST on new housing, construction companies face the most complex audits of any industry. If you receive a CRA audit letter, do not respond directly. Contact us immediately.
What Our Construction CRA Audit Support Includes
| Service | What We Do |
|---|---|
| Initial review of CRA audit letter | We review the audit notification, identify the scope (income tax, HST, payroll, T5018 or combined), determine the years under review and assess the risk level. We advise you on what to expect and what not to say or do. |
| CRA representation (authorized representative) | We register as your authorized representative with CRA. All communication goes through us. You do not speak to the auditor directly. We respond to every request, attend every meeting and manage every deadline. |
| Document preparation and organization | We compile, organize and review every document before it goes to CRA: contracts, subcontractor invoices, T5018 slips, bank statements, payroll records, equipment purchase records, CCA schedules, project accounting and HST returns. |
| Subcontractor classification defence | We prepare the two-factor test analysis for every worker CRA questions: control test and economic dependence test. We compile contracts, invoices, business registrations, T5018 slips and evidence that each sub operates an independent business. |
| T5018 reconciliation | We reconcile every T5018 slip against actual payments, invoices and bank records. We verify business numbers. We file amended slips where needed. We demonstrate that payments match what was reported and that every sub was a registered business. |
| Cash payment documentation | We reconstruct the cash trail: bank withdrawals matched to invoices, receipts and signed acknowledgements. We identify legitimate cash expenses (materials, site costs) and separate them from unsupported amounts. |
| GST/HST new housing audit defence | We verify HST on every residential project: collection on selling price, new housing rebate calculations (Form GST190), self-assessment on owner-built homes, ITC eligibility on dual-use properties. We reconcile against closing statements and correct errors proactively. |
| Equipment CCA and personal use defence | We prepare complete CCA schedules with purchase invoices, verify CCA classes, document Immediate Expensing eligibility and prepare vehicle logbooks and equipment usage logs. Personal use is calculated and reported on T4s before CRA raises it. |
| Revenue recognition and holdback review | We verify revenue recognition method (completed contract vs. percentage of completion), prepare percentage complete calculations and reconcile holdback receivables and payables against contract documents and the Ontario Construction Act. |
| Reassessment negotiation and objection | If CRA issues a reassessment, we review the proposal, identify errors in CRA's methodology, prepare a response and negotiate. If the reassessment stands, we file a Notice of Objection within 90 days and represent you through the appeals process. CRA Audit Resolution Services → |
Construction CRA Audit Support: Real Client Results
Worker Reclassification Audit, General Contractor (Vaughan)
CRA proposed reclassifying 8 subcontractors as employees over a 3-year audit period. The proposed reassessment was $187,000 in unremitted CPP, EI and income tax withholdings plus $28,000 in penalties. We prepared the two-factor test for each worker: 6 of the 8 had their own HST registrations, invoiced multiple clients, provided their own tools and controlled their own schedules. We submitted contracts, invoices from other clients and proof of business registrations. CRA accepted the classification of 6 workers as independent contractors and reclassified only 2.
T5018 Cross-Reference Audit, Residential Builder (Brampton)
CRA identified $320,000 in T5018 payments to 12 subcontractors whose reported income did not match. CRA proposed adding $320,000 to the builder's income as unreported revenue (treating the discrepancy as the builder not reporting the full contract value). We demonstrated that the $320,000 was correctly reported as subcontractor expense on the T2, not as revenue. The discrepancy existed because the subs underreported their own income. We prepared a reconciliation showing that every T5018 payment matched an invoice and a bank payment. CRA redirected the audit to the subcontractors and withdrew the builder's reassessment.
GST/HST New Housing Rebate Audit, Custom Home Builder (Oakville)
CRA audited new housing rebate applications on 6 custom homes. CRA proposed denying 3 rebates totalling $72,000 because the closing documentation did not clearly establish that the buyers intended to use the homes as primary residences. We gathered signed statutory declarations from each buyer, mortgage documents showing the property as the primary residence and utility account registrations dated within 30 days of closing. CRA accepted all 3 rebates.
Cash Economy Investigation, Concrete Contractor (Woodbridge)
CRA conducted a bank deposit analysis on a concrete subcontractor and identified $94,000 in deposits over 2 years that exceeded reported revenue. The proposed reassessment was $94,000 in unreported income plus HST of $12,220 plus penalties totalling $127,400. We reconstructed the cash flow: $62,000 was documented as personal savings deposited into the business account (traced to prior-year RRSP withdrawals and a family gift), $18,000 was a loan from a relative (documented with a promissory note) and $14,000 remained unexplained. CRA accepted the documentation and reassessed only $14,000.
How Construction CRA Audit Support Works
Review
We review the CRA audit letter, identify the scope and years, assess the risk level (worker classification, T5018, HST, cash economy) and advise you on the process. We register as your authorized representative immediately.
Prepare
We compile every document: contracts, subcontractor invoices, T5018 slips, bank statements, payroll, equipment records, project accounting. Everything is reviewed before CRA sees it.
Respond
We respond to every CRA request. We attend every meeting. We defend worker classifications, reconcile T5018 payments, document cash flow and verify HST compliance. You do not speak to CRA.
Resolve
We negotiate the outcome. If CRA proposes a reassessment, we challenge the methodology and numbers. If needed, we file a Notice of Objection and represent you through appeals.
CRA Audit Letter? Do Not Respond Directly. Call Us First.
We represent construction companies at CRA. From $400. CRA audit support FREE for bookkeeping clients.
CRA Audit Methods Used on Construction Companies
| CRA Method | How CRA Uses It | How We Challenge It |
|---|---|---|
| T5018 cross-reference matching | CRA matches T5018 payments you reported against what each subcontractor reported on their own return. Any mismatch triggers audit queries to both parties. CRA also identifies subs who received payments but did not file a return at all. | We reconcile every T5018 against invoices, contracts and bank payments. We demonstrate that the discrepancy is on the sub's side, not yours. We prepare a payment trail that proves every dollar you reported was a legitimate business expense. |
| Bank deposit analysis | CRA totals all bank deposits and compares against reported revenue. Excess deposits are treated as unreported income. Construction companies frequently trigger this because owners deposit personal funds, loan proceeds and inter-company transfers into the business account. | We identify every non-revenue deposit: owner contributions, loan proceeds, RRSP withdrawals deposited, family gifts, inter-company transfers, HST refunds and insurance payouts. Each item documented with source records. |
| Two-factor worker classification test | CRA applies the control test (who directs the work, sets hours, provides tools and materials) and economic dependence test (does the worker have multiple clients, own equipment, bear financial risk) to determine whether a worker is an employee or independent contractor. | We prepare a detailed analysis for each worker: contract terms, invoicing history, multiple client evidence, tool and equipment ownership, business registration, HST registration, Workers Comp coverage, liability insurance. We present the full picture showing the worker operates an independent business. |
| Project-by-project revenue review | CRA reviews individual project contracts, progress billings, change orders and final invoices. CRA verifies that the total revenue from each project matches what was reported on the T2. Cost overruns, change orders and disputed amounts are reviewed for proper income recognition. | We prepare a project-by-project reconciliation: contract value, change orders, progress billings issued, holdbacks, payments received and revenue recognized. We document disputed amounts, warranty holdbacks and uncollected receivables that reduce recognized revenue. |
| Material purchase verification | CRA cross-references material purchases (from supplier records) against the projects they were used on. If $200,000 in lumber purchases cannot be traced to specific projects, CRA assumes the materials were diverted (personal use or unreported side jobs). | We allocate material purchases to specific projects using purchase orders, delivery records and project cost reports. We account for waste, damaged materials, returns to supplier and inventory carried over between projects. Every dollar of material spend is tied to a job or documented as inventory. |
What to Do When Your Construction Company Receives a CRA Audit Letter
1. Do not respond to CRA directly
Do not call the auditor. Do not send any documents. Do not answer any questions about your subcontractors, workers or projects. The first response shapes the entire audit. A single misstatement about worker classification can expand a T5018 review into a full payroll reclassification audit. Contact us immediately.
2. Do not discard or alter any records
CRA requires you to retain all business records for at least 6 years. Contracts, subcontractor invoices, T5018 slips, bank statements, payroll records, equipment purchase documents, project accounting and tax returns must all be preserved. Destroying or altering records during an audit is a criminal offence.
3. Gather your subcontractor files
CRA will request contracts, invoices and T5018 slips for every subcontractor paid during the audit period. Locate every sub file: contract, invoices, proof of business registration, HST registration, WSIB clearance certificate and any other documentation showing the sub operates an independent business. These files are the core of every construction audit.
4. Locate project accounting records
CRA will request project-by-project revenue and cost breakdowns. Compile contract documents, change orders, progress billing summaries, holdback schedules, material purchase records and payment histories for every project in the audit period.
5. Contact us within 48 hours
The sooner we are involved, the better the outcome. Construction audits are the most complex audits CRA conducts. Worker classification alone can take months to resolve. Early involvement prevents mistakes that cannot be undone. Book a free consultation now.
CRA Audit Support FREE for Bookkeeping Clients: If you are already a bookkeeping client at Gondaliya CPA, CRA audit support is included at no additional charge. Your books are current, your T5018 slips are filed, your subcontractor files are organized and your CPA already knows every project. This is the single best reason to have a CPA do your construction bookkeeping: when the audit letter arrives, there is nothing to prepare because everything is already done.
Construction CRA Audit Support Pricing
| Audit Type | Fee | What Is Included |
|---|---|---|
| CRA audit response (single issue, 1 year) | From $400 | Review audit letter, register as representative, prepare response, submit documents, follow up with CRA until resolution. |
| CRA audit response (multi-issue or multi-year) | From $1,500 | Everything above + worker classification defence, T5018 reconciliation, cash flow reconstruction, equipment CCA verification, HST new housing review, reassessment negotiation. |
| Worker reclassification defence | From $2,500 | Full two-factor test preparation for every worker under review. Contracts, invoices, multi-client evidence, business registration verification. Negotiation and objection if needed. |
| Notice of Objection | From $2,000 | Formal objection filed within 90 days of reassessment. Detailed submission to CRA Appeals Division. Representation through the appeals process. |
| CRA audit support for bookkeeping clients | FREE | Full audit defence included at no additional charge for all active bookkeeping clients. Your books are current. Your T5018s are filed. Your CPA knows every project. |
Frequently Asked Questions: CRA Audit Support for Construction Companies
Meet Your Construction CRA Audit Defence Team
Your construction audit is handled by licensed CPAs who have represented hundreds of construction companies through CRA audits across Ontario.
Sharad Gondaliya, CPA
Founder and Principal CPA. Leads CRA audit defence for construction clients. Specializes in subcontractor classification defence, T5018 reconciliation, cash economy investigations, GST/HST new housing audits and reassessment negotiations with CRA.
Vandana Goel, CPA
Senior CPA. Manages CRA audit responses for general contractors, residential builders and specialty trades. Experienced in worker reclassification defence, equipment CCA audits, progress billing reviews, holdback compliance and Notice of Objection filings.
What Our Clients Say
900+ five-star reviews from business owners across Ontario and Canada.
CRA Audit Letter? We Represent Construction Companies at CRA.
Subcontractor classification, T5018, cash payments, HST new housing, equipment CCA, holdbacks. We handle the entire audit. You do not speak to CRA directly. From $400. FREE for bookkeeping clients.