CONTRACTOR’S CHECKLIST: CHARGING AND REPORTING GST/QST PROPERLY

Contractors in Quebec — whether in construction, renovation, electrical work, plumbing, HVAC, landscaping, or specialized trades — must navigate complex GST and QST rules. Unlike traditional retail or service businesses, contractors deal with deposits, progress billing, subcontractors, materials, labor, and mixed supplies. Misunderstanding these rules can result in under-collection of tax, denied input tax credits, refund delays, or Revenue Québec audits. This contractor-specific checklist explains exactly how to charge, collect, and report GST/QST properly.

Clear compliance protects your business from penalties, ensures accurate job costing, and keeps your contracts professionally structured.

LEGAL AND REGULATORY FRAMEWORK

Contractors must comply with the Excise Tax Act (GST) and the Quebec Taxation Act (QST). These laws require contractors to:
• register for GST/QST once they exceed $30,000 in taxable revenue
• charge GST and QST on all taxable services and materials
• collect and remit tax on progress payments, deposits, and milestones
• maintain proper records for subcontractors and suppliers
• file accurate periodic returns

Construction is not exempt from GST/QST. Only very specific cases (e.g., certain residential sales of new properties) follow different rules.

KEY COURT DECISIONS

Courts have repeatedly ruled that contractors are responsible for proper GST/QST invoicing and documentation. Key findings include:
• deposits and progress payments must include tax
• contractors cannot claim ITCs/ITRs without proper supplier invoices
• subcontractor invoices must include GST/QST registration numbers
• estimates and quotes are not invoices — tax must be charged when invoicing
• misclassification of exempt vs. taxable components results in reassessments

Courts have upheld penalties where contractors argued that clients “didn’t want to pay tax” or that “materials included the tax.” The law requires tax collection regardless of client preference.

WHY CONTRACTORS ARE FREQUENTLY AUDITED

Revenu Québec frequently reviews contractors because the industry has:
• high cash activity
• progress billing structures
• subcontractors with incomplete documentation
• multiple small supplier invoices
• misapplied GST/QST on materials vs. labor
• inconsistent bookkeeping
• large refund claims due to material purchases

These factors make contractors a high-risk sector for sales tax reviews.

CONTRACTOR’S CHECKLIST: CHARGING AND REPORTING GST/QST PROPERLY

1. Confirm GST/QST registration
   Ensure your business is properly registered and your tax numbers appear on all invoices, contracts, and quotes.

2. Charge GST/QST on all taxable services
   Construction, renovation, landscaping, repairs, installation, and maintenance are taxable in Quebec.

3. Apply tax to both labor and materials
   Unless performing very specific exempt work, both labor and materials are taxable. Do not split invoices to avoid tax.

4. Apply GST/QST to deposits and progress payments
   The moment you receive a deposit, tax becomes collectible. Your invoice for the deposit must include GST/QST.

5. Charge tax on milestone billing
   Progress payments, partial invoicing, and holdbacks are subject to GST/QST.

6. Ensure subcontractor invoices are compliant
   A valid subcontractor invoice must include:
   • business legal name
   • GST and QST registration numbers
   • tax amounts shown separately
   • description of work
   • invoice date and number
   Missing details = denied input tax credits.

7. Maintain proper documentation for materials
   Keep supplier invoices showing:
   • GST/QST charged
   • material descriptions
   • supplier tax numbers
   These invoices support your ITCs/ITRs.

8. Track expenses per project
   Job costing ensures you capture all ITCs, especially large material purchases.

9. Reconcile GST/QST accounts monthly
   Contractors often have fluctuating tax balances. Monthly reconciliation prevents errors and cash flow surprises.

10. Review tax coding in accounting and POS systems
    Ensure tax codes are correctly applied for:
    • materials
    • labor
    • subcontractors
    • rentals
    • equipment purchases

11. Track equipment and capital purchases
    Heavy equipment, tools, and vehicles often qualify for ITCs. Keep detailed invoices.

12. Separate business and personal expenses
    Mixed-use tools, fuel, and vehicle expenses must be allocated properly or ITCs may be denied.

13. Issue proper credit notes when adjusting invoices
    Refunds or adjustments must include reversed GST/QST.

14. Review place-of-supply rules
    For out-of-province jobs, tax rules may differ. Quebec jobs = QST applies.

15. Keep job contracts and change orders
    Auditors often request project details to verify tax treatment.

MACKISEN STRATEGY

Mackisen CPA helps contractors manage GST/QST compliance with properly structured invoicing, tax coding, subcontractor documentation, and periodic reconciliations. We implement job-costing systems, verify purchasing records, and ensure tax is applied correctly on deposits, progress payments, and project milestones.

We also help contractors prepare audit-ready files, respond to verification requests, and file adjustments when errors from past periods are discovered.

REAL CLIENT EXPERIENCE

A renovation contractor charged GST but not QST for six months due to POS misconfiguration. Mackisen corrected filings, updated invoicing, and minimized penalties through proper adjustments.

A landscaping company lost thousands in input tax credits after failing to keep supplier invoices. Mackisen recovered documents from vendors and secured approval for refunds.

A construction business faced a QST audit due to inconsistent progress billing. Mackisen rebuilt milestone records and resolved discrepancies with Revenu Québec.

COMMON QUESTIONS

Do all contractors need to charge GST/QST
Yes. Construction and renovation work is taxable unless extremely specific exemptions apply.

Are deposits taxable
Yes. GST and QST must be charged on all deposits and progress payments.

Can subcontractors invoice without charging tax
Only if truly exempt. Most subcontractors must charge tax.

What if a client doesn’t want to pay tax
You must still charge tax. The law does not allow client-based exemptions.

Can contractors claim GST/QST on tools
Yes, with proper documentation.

WHY MACKISEN

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps contractors apply GST/QST correctly, manage documentation, prevent under-collection, and stay audit ready. Our expert systems protect contractors from costly errors and strengthen financial performance.