The GST and QST report: An essential path for Quebec companies to follow

The art of accounting is a fascinating and, at the same time, highly technical field. As a lawyer, my role is not only to understand the law, but also to know how to navigate the labyrinth of tax obligations. Today, let’s take a look at GST and QST. Two acronyms that sound familiar to every Quebec entrepreneur, but are often a source of confusion and headaches.

Deciphering the basics: What are GST and QST?

It’s always a good idea to start at the beginning. Simply put, the GST is a Goods and Services Tax levied at the federal level. Meanwhile, the QST (Quebec Sales Tax) is its provincial equivalent.

“Taxation is what allows a company to function, but it requires rigorous management on the part of businesses.”

Generally speaking, these taxes are levied on the sale or supply of goods and services. But here, the interest lies mainly in their relationship. Because yes, as a company, you have reporting obligations. And this is where things get a little complicated.

Company obligations: more than just declarations

In Quebec, many businesses are required to collect these two taxes at source. In practice, this means that when you sell a product or service, you must add these taxes to the amount invoiced, then remit them to the government.

Regular reporting, a legal obligation

It’s not enough to collect these taxes. You must also report them. The frequency of this obligation varies according to your company’s sales volume. Here are some key points to remember:

Companies with sales of less than $1.5 million generally have an annual obligation.
Those with sales between $1.5 and $6 million must report quarterly.
Finally, above $6 million in sales, the frequency becomes monthly.

Details that count

Remitting these taxes is not a simple matter of subtracting what you’ve collected from what you’ve paid. Several factors can influence the amount to be remitted, including tax credits. These credits represent the amounts of GST and QST you have paid on your purchases and expenses, which are deductible from what you have to remit.

The importance of supporting documents

Think of it as a balancing act. On the one hand, there’s what you’ve collected, and on the other, what you’ve paid. The key to success lies in documentation. Keeping track of all your transactions is essential. Invoices, receipts, contracts – everything must be kept.

Some pitfalls to avoid

The world of taxation is full of nuances and subtleties. Here are a few common mistakes:

Failing to collect taxes on certain sales. We sometimes mistakenly think that certain transactions are not taxable.
Forgetting to declare and remit taxes when you’re a small business owner.
Ignoring eligible tax credits, which can result in excessive remittances.

These mistakes may seem trivial, but they can result in significant penalties. That’s why it’s so important to be well informed and, why not, to call in a professional.

That said, the process of reporting GST and QST, while seemingly complicated at first, becomes more manageable with time and practice. And remember, every challenge is an opportunity in disguise.

The GST and QST report is a mandatory step for any business in Quebec. By completing it carefully and rigorously, not only do you remain in compliance with legal obligations, but you also demonstrate a level of professionalism and seriousness that can only strengthen the confidence of your customers and partners.

GST and QST legislation

The legal framework governing GST and QST is of crucial importance to Quebec entrepreneurs and businesses. The slightest error or omission can have serious financial and legal consequences.

The Excise Tax Act

The Excise Tax Act, codified as R.S.C., 1985, c. E-15, regulates the GST at the federal level. It defines the obligations of registered suppliers, how the tax is collected and the penalties associated with non-compliance.

Quebec Sales Tax Act

For the QST, the Act respecting the Québec sales tax prevails. Referred to as R.S.Q., c. T-0.1, this provincial law describes the rules specific to the province of Quebec, identifying taxable goods and services, as well as their exceptions.

Financial penalties: what to expect in the event of non-compliance?

GST and QST penalties are not to be taken lightly. Failure to comply with tax obligations can be costly.

For example, in the event of late remittance of GST/QST, a penalty of 1% of the amount due may be applied for the first month of delay. For subsequent months, this rate rises to 2%.
If a declaration is omitted or false, the penalty may reach 10% of the amount of tax not remitted. In the event of a repeat offence within five years, the penalty can rise to 20%.

A notable case of failure to comply with these obligations is that of company XYZ (name changed for reasons of confidentiality), which in 2019 was fined $2 million for failure to remit GST/QST over a two-year period. This case, widely reported by the media, underlines the importance of rigorous management of tax obligations.

Exceptions and nuances

While the law is strict, there are exceptions. Here are just a few examples:

Basic food products, such as vegetables or bread, are generally exempt from GST, but may be subject to QST under certain conditions.
Certain educational or medical services may also be exempt from both taxes.
Government entities or certain institutions have special rules concerning taxation.

Tax disputes

When a disagreement arises with the tax authorities, it’s crucial to be well informed and prepared. Some cases, such as that of ABC in 2017 (again, name changed for confidentiality), have shown that even a small detail can lead to costly and lengthy litigation.