Charging and Collecting Sales Tax Correctly

Introduction
Understanding the rules for charging and collecting sales tax correctly is essential for every Canadian business—whether you are a sole proprietor, corporation, freelancer, e-commerce seller or service provider. Sales tax mistakes can lead to costly reassessments, denied input tax credits (ITCs), penalties and interest. Many business owners misunderstand place-of-supply rules, apply the wrong tax rate, forget to charge QST in Québec, or fail to invoice GST/HST properly. Because GST, HST and QST involve significant government revenues, CRA and Revenu Québec aggressively enforce compliance. This guide explains everything business owners need to know about charging and collecting sales tax correctly so they stay audit-proof and compliant across Canada.

Legal and Regulatory Framework
Charging and collecting sales tax correctly is governed by:

• the Excise Tax Act (GST/HST)
• the Taxation Act of Québec (QST)
• place-of-supply regulations
• CRA invoicing requirements
• Revenu Québec QST compliance rules

Businesses must charge GST/HST or QST on taxable supplies—which include most goods and services except exempt items like basic groceries, certain healthcare services, residential rents and financial services.

To comply with charging and collecting sales tax correctly, businesses must:

• be properly registered for GST/HST
• be properly registered for QST if operating in Québec
• apply the correct tax rate based on where the supply is made
• issue compliant invoices showing tax rates and registration numbers
• collect tax at the time of sale
• remit the tax to CRA or Revenu Québec
• maintain full documentation for ITCs and ITRs

Failure to follow these rules can result in strict penalties and interest.

Applying Correct Sales Tax Rates (Place of Supply Rules)
Charging and collecting sales tax correctly requires applying the correct rate based on place-of-supply rules, not the seller’s location.

For services, the tax is based on the client’s province.
For goods, the tax is based on where the goods are delivered.

Examples:

• Client in Ontario → charge HST 13%
• Client in Alberta → charge GST 5%
• Client in Québec → charge GST 5% and QST 9.975%
• Goods shipped to Nova Scotia → HST 15%
• Goods picked up in Québec → GST + QST

Many businesses apply the wrong rate, leading to reassessments.

Key Court Decisions
Court cases highlight how important charging and collecting sales tax correctly is. Key themes include:

• businesses remain liable for sales tax even if customers refuse to pay
• ITCs are denied when invoices lack GST/QST numbers or proper details
• mixed supplies must be analyzed carefully—courts reject incorrect tax treatments
• retroactive GST/HST cannot always be collected from customers
• Québec courts enforce strict QST invoicing standards

One court ruling confirmed that a contractor who charged GST incorrectly (but collected too little) was responsible for paying the full correct amount to CRA—customers were not responsible for the difference. This proves the importance of charging and collecting sales tax correctly.

Why CRA and Revenu Québec Target This Issue
Sales tax audits are extremely common because:

• many businesses use the wrong tax rate
• GST/QST is collected but not remitted
• businesses forget to register for QST when operating in Québec
• e-commerce sellers often misapply place-of-supply rules
• invoices lack required elements
• ITCs are claimed incorrectly
• foreign suppliers fail to charge proper sales tax

Audit triggers include:

• mismatches between GST collected and remitted
• high ITC claims compared to revenue
• businesses charging GST without a valid registration number
• repeated late filings
• inconsistencies between GST/QST filings and T2 corporate income
• underreported revenue
• incorrect sales tax codes in invoicing software

Understanding charging and collecting sales tax correctly prevents these costly issues.

Mackisen Strategy
Mackisen CPA provides a complete, risk-free strategy for charging and collecting sales tax correctly:

• determining correct GST/HST/QST registration requirements
• setting up automated tax rules in accounting and invoicing software
• applying place-of-supply rules for all provinces
• preparing compliant invoice templates with correct tax disclosures
• reconciling GST/HST and QST accounts monthly
• reviewing ITC and ITR eligibility
• correcting errors through CRA or Revenu Québec voluntary disclosures
• preparing GST/HST returns and QST returns
• representing clients in sales tax audits

Our approach ensures every sale is invoiced correctly, every tax is remitted properly and every refund or ITC claim is fully supported.

Real Client Experience
Many businesses come to Mackisen after issues related to charging and collecting sales tax correctly. One Ontario consultant charged only GST instead of HST for three years. CRA reassessed over $10,000 in sales tax. Mackisen corrected filings through VDP and minimized penalties.

A Québec business combined GST and QST into a single tax line. Revenu Québec denied several ITR claims for non-compliant invoices. We rebuilt systems and corrected filings.

An e-commerce seller charged GST to Alberta customers but forgot to charge HST to Atlantic provinces. We implemented proper place-of-supply rules and corrected all historical returns.

A contractor collected GST but never remitted it. CRA issued garnishments. Mackisen negotiated a payment plan and restored compliance.

These cases show how important charging and collecting sales tax correctly is for businesses in Canada.

Common Questions
Business owners frequently ask:

• Do I charge GST or HST to out-of-province clients?
Use place-of-supply rules.

• Do I need to register for QST if I sell in Québec?
Yes—QST registration is required for taxable supplies in Québec.

• Can I claim ITCs without receipts?
No—CRA and Revenu Québec require full documentation.

• What if I accidentally charge the wrong tax rate?
Corrections must be made in your GST/QST returns.

• Do foreign online sellers need to charge GST/HST?
Yes—many foreign e-commerce suppliers must register under new digital taxation rules.

Understanding these answers ensures businesses handle charging and collecting sales tax correctly.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you're filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When managing charging and collecting sales tax correctly, Mackisen provides complete setup, compliance checks, voluntary disclosures and expert audit defense to keep businesses fully protected.