Customer Didn’t Pay, But You Remitted GST/QST – Now What?

When a customer’s invoice goes bad – meaning you never get paid – yet you’ve already remitted the GST (federal Goods and Services Tax) and QST (Quebec Sales Tax) on that sale, it can feel like paying taxes on phantom revenue. This scenario, unfortunately common for businesses, leaves you out of pocket for both the sale and the sales taxes forwarded to the government. The good news is that Canada’s tax laws do provide relief for such unpaid customer invoices, allowing you to recover the GST/QST tied to bad debts. However, navigating the rules requires a strong grasp of the legal framework, diligent documentation, and strategic action. In this in-depth analysis – comparable to the expert guidance from Big Four firms – we at Mackisen CPA (a Montreal CPA firm near Complexe Desjardins) outline what to do when a customer doesn’t pay but you’ve remitted GST/QST, including the legal basis, court precedents, tax agency expectations, and a step-by-step strategy to protect your cash flow and remain compliant.

Legal and Regulatory Framework

Remittance Obligation vs. Bad Debt Relief: Under Canadian tax law, GST/QST is generally payable to the tax authorities at the time of sale (for accrual-basis filers), regardless of whether the customer actually pays you. In other words, if you invoice a customer for a taxable sale, you must report and remit the GST/QST on that invoice by the due date, even if no cash is received This prevents businesses from using unpaid invoices as a way to defer tax. However, both the federal Excise Tax Act (ETA) and Quebec’s Act respecting the Québec sales tax (AQST) contain provisions to remedy the unfairness of remitting tax on a bad debt. Specifically, ETA subsection 231(1) and AQST section 444 allow a supplier to deduct or credit the GST/QST related to an uncollectible receivable, once certain conditions are met. In Quebec, this is often called a “crédit de taxe pour créance irrécouvrable,” or credit for tax on a bad debt.

Key Conditions in Law: The laws lay out four main criteria that must be satisfied to claim back the taxes on a bad debt:

• Taxable Transaction: The original sale must have been a taxable supply (GST/QST applied) that is not zero-rated or exempt. (No relief is needed if no tax was charged in the first place.)

• Arm’s Length Sale: The sale was made to a recipient with whom you deal at arm’s length (i.e. not to yourself or a closely related party). This prevents abuse via internal write-offs.

• Debt has Become Uncollectible: It must be established that the receivable (consideration plus tax) is a bad debt – meaning you’ve taken all reasonable steps to collect, but ultimately cannot recover the amount. We discuss below what “reasonable steps” entail as defined by CRA and jurisprudence.

• Write-Off in Books: You must formally write off the bad debt in your accounting records (e.g. record a bad debt expense and remove the amount from accounts receivable). Timing is important: the tax can only be recovered in the reporting period when the write-off is made (or a later period), not merely when the account is overdue. In practice, you should document a board or management decision to write off the specific invoice as uncollectible.

If all the above are met, ETA 231(1) permits a deduction in calculating your net GST/HST for the period of the write-off (or a subsequent period) by an amount given by a formula. In essence, you get to subtract the GST portion of the bad debt from the GST you owe that period (or add it to your refund). Similarly, AQST 444 allows a registered supplier to adjust its net QST remittance for the QST portion of the written-off debt. Importantly, the statutes explicitly require that the GST/QST was originally reported and remitted in the first place, before you can claim it back. In other words, you cannot simply never remit tax on a sale and later call it a bad debt – you had to have fulfilled your initial remittance obligation for the relief to apply.

Recovery and Repayment: The framework is symmetrical – if you later recover any portion of a debt that you wrote off, you must add back the corresponding GST/QST in the period of recovery. ETA 231(3) and AQST 446 stipulate that any payment received on a previously written-off account triggers an inclusion of the tax fraction of that payment in your next net tax calculation In plain terms, you have to remit the GST/QST on the amount you actually end up collecting, even if it’s much later. This prevents a scenario where you get a tax refund for a bad debt and also get to keep the taxes if the customer surprises you by paying eventually.

Time Limit – Statute of Limitations: Both GST and QST bad debt adjustments are subject to a limitation period. Under ETA 231(4), the deduction must be claimed within four years from the due date of the return for the period in which the debt was written off. Practically, this means once you write off a bad debt in your books, you should adjust your next GST/QST return or one soon after – waiting more than four years could forfeit your chance to recover the tax. (There are few exceptions; for most registrants the 4-year rule is firm.) Quebec’s rules are harmonized: AQST section 446.1 likewise imposes a four-year cap to claim the credit for a bad debt (mirroring the federal limitation). CFOs and controllers should have procedures to promptly claim these adjustments so that valuable refunds are not lost by delay.

Relevant CRA and ARQ Guidance: Both tax authorities have published guidance reinforcing these rules. The CRA notes that a bad debt GST adjustment is taken as a deduction from net tax (not as a standard input tax credit on line 108 of the return, but rather on the special adjustment line 107). Revenu Québec’s administration uses the term “input tax refund (ITR)” for the QST credit, but it is conceptually the same type of deduction. CRA’s official publications (e.g. GST/HST Policy Statement P-029) reiterate that if the above conditions are met and the debt is written off, the supplier “may… deduct an amount determined in accordance with the formula” provided in the law. The agencies also remind businesses that if the debt is later recovered, the previously recovered tax must be added back in the return for that period so proper tracking of any payments on bad accounts is essential. In summary, the legal framework gives you a path to recover GST/QST on bad debts, but it comes with conditions: you must have remitted the tax initially, you can only claim after a bona fide write-off, and you must do so within the statutory deadline.

Judicial Precedents Defining Obligations and Rights

Tax legislation provides the structure, but court decisions fill in critical details on how these rules apply in real situations. Several notable cases shed light on what is expected of suppliers before they can claim GST/QST relief, and on how strictly the rules are enforced:

• Reasonable Collection Efforts – Greenfield Mining (2020): In Greenfield Mining Services Inc. v. Agence du revenu du Québec, 2020 QCCQ (Court of Québec), the court addressed the question: How far must a creditor go to prove a debt is bad? Greenfield had taken numerous steps – reminders, legal proceedings, registering liens, and even negotiating a partial settlement – yet still had a large unpaid amount and wrote it off. Revenu Québec argued the company hadn’t exhausted all possibilities (noting that some proceedings were still technically ongoing via mediation). The Court disagreed and clarified that “a genuine attempt to recover a debt does not impose an obligation to exhaust all possible and imaginable recourses.” The judge held that the multiple steps and substantial costs Greenfield incurred were sufficient to demonstrate real and reasonable efforts to collect. In allowing the QST bad debt deduction (for the portion of the debt not recovered in the settlement), the Court confirmed that businesses do not have to chase a hopeless debt endlessly. Once it’s clear a debt (or a portion of it) is uncollectible despite reasonable measures, it meets the definition of “bad debt” for tax purposes. This precedent is reassuring to creditors: you won’t be denied a GST/QST refund just because you didn’t, say, sue the customer into bankruptcy, as long as you can show good-faith collection attempts and a sensible decision that further efforts would be futile.

• What Counts as Reasonable Effort – Paquin (2004): On the other hand, the Tax Court of Canada in Paquin v. The Queen, 2004 TCC 597, illustrates a scenario where a supplier’s efforts were found lacking. In Paquin, a supplier was owed money by a corporation whose two directors (a husband and wife) were guarantors by virtue of directors’ liability. The supplier pursued legal action against the husband (one director) but made no attempt to pursue the wife, then eventually wrote off the debt and claimed a GST bad debt deduction. The Court ruled that the supplier “had not taken reasonable collection actions” in that situation. Essentially, there was a clear additional recourse (the second director) that the supplier ignored. The claim for a GST refund was denied. Paquin serves as a caution: tax authorities and courts expect you to utilize normal collection channels – send demand letters, attempt negotiations, perhaps use collection agencies or legal claims – before you give up and write off a debt. If you prematurely abandon recovery when avenues were still open, your bad debt claim might not hold up. What constitutes “reasonable” is contextual (industry norms, cost of pursuit versus amount, debtor’s condition, etc.), but the burden is on the taxpayer to show they tried in good faith to get paid.

• Partial Payments & Guarantees – Sural (Letter of Credit case) (2024): A recent Court of Québec decision (Hon. Daniel Bourgeois, September 2024) dealt with a sophisticated scenario: a supplier had a huge unpaid receivable (over $52M) from a customer, but luckily had a stand-by letter of credit from the customer’s bank that paid out $16M after the customer became insolvent. The supplier wrote off the remaining balance and claimed QST bad debt adjustments for both the truly unpaid portion and the portion covered by the $16M letter of credit. Revenu Québec contested the latter. The Court held that a supplier cannot claim a bad debt deduction on any portion of a debt that was actually recovered, even if the money didn’t come from the debtor directly. In this case, the $16M from the bank reduced the debt, so only the unrecovered $36.67M was a “bad debt” – the QST on that portion could be claimed, but the QST on the $16M that the bank paid could not. The supplier had argued the bank payment was akin to an insurance indemnity or financial service, but the Court looked at substance: those funds did cover part of the invoices (including tax). The takeaway is that you can’t double-dip: if you receive any form of payment or compensation for the debt (be it from the customer, a guarantor, an insurer, etc.), you must exclude that part from your bad debt claim. This aligns with the statutory formula that only the unpaid portion of consideration and tax qualifies.

• Credit Notes vs. Bad Debt Write-offs – Greenfield (again): Another point clarified in the Greenfield Mining case was whether a supplier must issue a credit note to the customer to claim the tax adjustment. A credit note is an accounting document reducing the original invoice (often used if you forgive a debt or grant a concession). Revenu Québec argued that Greenfield should have issued a credit note for the forgiven portion of the debt, implying that without it the tax refund wasn’t valid. The Court concluded there is no legal obligation to issue a credit note in order to claim a bad debt deductionWriting off the debt in the books is sufficient under the law. That said, the court acknowledged a credit note can be administratively useful (it leaves a clear trace in the debtor’s books, alerting them to adjust any input tax credits). Many taxpayers do choose the credit note route, especially if they are forgiving a portion of a debt in a settlement, because it simplifies matters with the customer and tax authorities. In summary, courts have upheld that the statutory bad debt mechanism stands on its own – you do not have to issue a credit note, though doing so is an alternative path to achieve a similar tax adjustment (essentially treating the sale as partially cancelled rather than uncollectible). We’ll discuss this alternative briefly in the next section.

These judicial precedents collectively define a landscape where due diligence in collections and proper documentation are crucial. They show that the right to recover GST/QST on a bad debt is solid, but not automatic – you must earn it by acting reasonably and following the rules. They also demonstrate the courts’ insistence on economic reality: only real bad debts (after partial recoveries) get relief, and you need to genuinely write them off, not just leave them lingering. Knowing these cases helps CFOs and tax professionals structure their policies (for example, how long to chase debts, when to write off, whether to use credit notes in settlements, etc.) to ensure any GST/QST recovery will withstand scrutiny.

Why CRA and Revenu Québec Monitor Unpaid Invoices (Audit Triggers)

Both the CRA (Canada Revenue Agency) and Revenu Québec are keenly aware of the refunds and credits flowing out of the GST/QST system for bad debts. Why? Whenever you claim back GST or QST on a bad debt, the government is essentially giving up tax revenue it thought it had. This in itself is a perfectly legitimate outcome of the law, but tax authorities want to verify that such claims are justified and accurate. Here are some reasons these scenarios draw attention, and common triggers for audits or reviews:

• Potential for Abuse or Error: An unscrupulous business might be tempted to declare an invoice uncollectible just to get a quick GST/QST refund, even if the customer might still pay. Or, mistakes can happen if staff aren’t aware of the rules – e.g. claiming a bad debt adjustment on an invoice that is merely overdue, not truly written off. Tax authorities know the rules can be misapplied, so they tend to scrutinize claims for bad debt credits. The CRA has stated that it will deny a bad debt adjustment if the evidence doesn’t clearly support that the amount became a bad debt. Simply having an aged receivable or notes about phone calls won’t cut it. They expect to see formal write-off entries and evidence that the account was pursued without success. Revenu Québec similarly may ask for documentation of collection efforts and the actual write-off transaction. Claims lacking backup (e.g. no correspondence with the client, no write-off journal entry) are red flag.

• High Dollar or Unusual Patterns: Large refund claims will almost always get reviewed. If you suddenly claim a significant GST or QST bad debt credit – especially if it results in a refund payable to you – expect the agencies to take a closer look. They may request supporting documents for the write-off and proof that you had remitted the tax originally. Additionally, an unusual pattern of write-offs relative to your sales volume could trigger questions. For example, if every year you write off a substantial portion of sales and reclaim the tax, auditors will want to know if this is due to genuine bad debts or perhaps aggressive revenue recognition practices (or even related-party dealings being written off). The nature of your business matters here: some industries (e.g. construction, retail) might have more bad debts than others – you should be prepared to explain if asked why a particular invoice went bad (bankruptcy of customer, etc.).

• Timing and Frequency of Claims: Another trigger is timing irregularities. Suppose a company consistently waits many years to write off bad debts and then tries to claim a bunch of old ones at once – the tax authorities may question those (and the 4-year limitation will come into play). Conversely, claiming a bad debt credit too quickly after a sale (e.g. only 30 days past due) might raise eyebrows that you didn’t really attempt to collect. There’s a balance: you should follow a reasonable timeline for collections and only write off when appropriate. Auditors often ask for the date of sale, date tax was remitted, and date of write-off to ensure the sequence complies with rules (e.g. you didn’t claim before writing off, etc.).

• Ensuring Purchaser Compliance: An important reason these scenarios are monitored is the potential mismatch between supplier and purchaser tax claims. Consider that if you (the supplier) remitted GST/QST on a sale, your customer (if a business) may have claimed an Input Tax Credit (ITC) or Input Tax Refund (ITR) on that same transaction – assuming they intended to pay you. If the debt goes bad and you claim back the tax, what happens to the customer’s ITC/ITR? The tax authorities don’t want a situation where the customer keeps a credit for tax they never actually paid, while the supplier also gets refunded – that would be the government paying out twice. CRA and ARQ therefore monitor bad debt claims to ensure the purchaser’s side is addressed. In practice, if you issue a credit note to the customer for the tax, the customer is required to adjust (reduce) their ITC/ITR accordingly. If you don’t issue a credit note (using the bad debt write-off route instead), the agencies have mechanisms to correct the purchaser’s claim. Revenu Québec can invoke section 25 of the Tax Administration Act to assess the customer directly for any input tax refund that was claimed on an unpaid invoice. Similarly, the CRA can assess a purchaser under ETA section 296(1)(b) to claw back an ITC related to a bad debt situation. Tax authorities often exchange information in audits; for instance, if Revenu Québec audits you and disallows a bad debt credit, they might also look at whether the customer properly handled their side (and vice versa). As a business, you may not see this directly, but it underscores why your claim may be scrutinized – the government is effectively reconciling both sides of the transaction.

• Consistency and Documentation: CRA and ARQ also look for consistency in how you treat bad debts. If, for example, you claimed a GST bad debt deduction but did not claim the corresponding QST (or vice versa), that could trigger questions – it should normally be done for both taxes in Quebec. They also check that the amount of tax claimed back matches the tax that was initially remitted on that invoice, proportionate to the unpaid portion. Any discrepancy (say you claimed more QST than the invoice had) will be a red flag. Common audit questions include: “Show us the original invoice and tax amount,” “Show that you reported these taxes on your earlier GST/QST return,” “Provide the ledger entry for the write-off,” and “Provide copies of collection letters or bankruptcy filings.” Being prepared with organized records will make any audit or review go much smoother.

In summary, GST/QST bad debt recoveries are a known audit focus. The agencies are essentially fine with giving you a refund, but only if you follow the rules to the letter. Expect them to verify the three core aspects: (1) that you indeed remitted the tax originally, (2) that the debt is truly bad (with evidence of efforts and write-off), and (3) that the claim is timely and accurate. If you satisfy those, you have nothing to fear from an audit – and we often help clients compile the necessary documentation proactively. But if any of those aspects is lacking, the claim might be denied, and you could face reassessment, interest, or penalties. The next section discusses exactly how and when to claim these adjustments for GST vs QST, which itself is key to staying onside of the rules.

CRA vs. ARQ Rules for Claiming GST/QST on Bad Debts (ITCs and ITRs)

While GST and QST are harmonized in concept, the terminology and forms differ slightly. Let’s break down how to recover sales tax on a bad debt under CRA rules (GST/HST) versus Revenu Québec rules (QST), and clarify when and how to claim the amounts:

GST/HST – Input Tax Credit or Adjustment? Under the federal system, the amount of GST (or HST, in harmonized provinces) that you recover for a bad debt is often colloquially called an “input tax credit,” but technically it is not a regular ITC – it’s a deduction in determining net tax on your GST return. In practice, on the standard GST return (Form GST34), you would include the bad debt GST amount on line 107 (which is for adjustments), not on line 108 (which sums your ITCs on purchases). This distinction matters mainly for accounting clarity; the effect (reducing your payment or increasing your refund) is the same. The key is timing: you can claim this deduction in the GST return for the period in which you wrote off the debt (or any return within the next four years). We advise claiming it on the very next return after the write-off to keep things clean. For example, if in Q1 you conclude an account is bad and record the write-off, then on your Q1 GST/HST return you would include the GST amount of that invoice as an adjustment (deduction).

QST – Input Tax Refund (ITR): For QST, the mechanism is analogous but uses different terms. Quebec registrants file a combined GST/QST return (in Quebec, often using the TPZ-501 or FPZ-500 series forms). The QST you paid on purchases is normally claimed as an “Input Tax Refund.” In the case of a bad debt, Revenu Québec views the recoverable QST as a type of ITR – effectively, you are getting a refund of QST previously remitted. On the QST return form, there is a line to include “other adjustments” or specifically bad debt credits. The official term in French is déduction pour créance irrécouvrable, but when reported it simply increases your total ITRs/refunds for the period. Like the GST, you should claim it in the period of the write-off or a subsequent period within the 4-year limit. Many Quebec businesses will make the adjustment in the same period for both GST and QST to keep them in sync.

When Can You Claim? Only after the debt is truly uncollectible and written off. Emphasizing what we noted earlier: you cannot claim a GST or QST adjustment just because an invoice is 90 days past due or even if it’s been in collections for a while. You must reach the point where you decide to write off the receivable in your books as a bad debt. This often coincides with events like the customer going bankrupt, a court judgment being unsatisfied, the closure of a business, or simply passage of a long time with exhaustive attempts. As soon as you write it off (say, credit Accounts Receivable and debit Bad Debt Expense), that is the moment the tax laws recognize the debt as “bad” for refund purposes. From that point, you can put the GST and QST amounts on your next returns. The CRA’s own guide confirms you need to have taken “all reasonable steps” to collect and have evidence the debt is uncollectible; an aged invoice alone isn’t enough. So practically, ensure you document the write-off decision (e.g. an internal memo or notation “written off as bad debt as of [date]”) and have backup like bankruptcy notices, final demand letters, or collection agency reports.

How to Calculate the Refund Amount: Both laws use a proportionate formula (as seen earlier in ETA 231). In most straightforward cases where the entire invoice (price + tax) is unpaid and you write off the full amount, you simply recover the full GST and QST that you had charged on that invoice. For example, you sold $1,000 of goods plus GST $50 + QST $99.75 (assuming 5% GST, 9.975% QST). If the $1,149.75 total is never paid and you write it all off, you claim back $50 GST and $99.75 QST. If the debt is partially paid or if you’re writing off only a portion of an invoice, the formula ensures you only claim the corresponding fraction of tax. Say you were paid half the invoice and you’re writing off the other half – you’d claim 50% of the GST/QST amounts. The formula A × B/C in the law basically does that: A = total tax on the sale, B = the unpaid amount written off, C = total invoiced amount including tax Most accounting systems will do this automatically if set up correctly. Just be careful to exclude any late payment interest or charges – the bad debt relief only applies to the original consideration and sales tax, not, say, interest you charged on the overdue account (which wasn’t taxed to begin with).

Alternate Path – Credit Notes: It’s worth noting again: instead of claiming a “bad debt deduction,” a supplier has the alternative of issuing a credit note to the customer for the unpaid amount (reducing the original taxable amount). By doing this, you adjust the sale as if you gave a discount or cancellation, and you correspondingly adjust the GST/QST. The customer would receive the credit note and be obliged to reduce any ITC/ITR they claimed. Some businesses prefer this route if, for example, they negotiate a settlement with the customer to forgive part of the debt. It can be cleaner administratively since both parties record the credit note. However, you typically wouldn’t issue a credit note unless you are formally forgiving the debt. A credit note is essentially saying “I’m not going to collect this amount from you, period.” In contrast, writing off a bad debt doesn’t necessarily forgive the debt in a legal sense – it’s an accounting move acknowledging improbability of collection (you could still theoretically pursue it later). The tax impact of either method (credit note vs bad debt claim) is the same: you get relief from the government for the tax portion. But as noted, a credit note is not required to claim under the bad debt provisions it’s just an optional strategy. If there’s any chance of recovering money down the line, companies often prefer the bad debt route (keep the invoice open in legal terms, write it off in books, claim the tax back, and if a miracle happens and the client pays, you then pay the tax back). If you’ve definitively resolved that no more will be paid (perhaps via a settlement or agreement), a credit note could finalize the matter. Revenu Québec has indicated that many taxpayers use credit notes to avoid needing to meet the “higher standards” of proving a bad debt – but if you have solid proof of a bad debt, either approach is fine.

Purchaser ITC/ITR Considerations: A brief note from the customer’s perspective: as mentioned, if your customer claimed GST or QST credits on the purchase but never paid you, they are not actually entitled to those credits indefinitely. Under GST rules, if a purchaser hasn’t paid the supplier within a specified period (generally by the end of the second tax year after the expense was incurred), the purchaser must repay (add back) the ITC on their GST return for that period. They can reclaim it later if they do pay. Quebec’s rules are analogous for ITRs. This is to prevent buyers from enjoying input credits on unpaid bills. Additionally, if you issue a credit note or if a bad debt adjustment is claimed, the customer should self-assess and adjust their ITC/ITR accordingly. If they don’t, as noted, the agencies can assess them. As a supplier, you mainly need to worry about your own compliance, but be aware this is the backdrop. Sometimes a customer might see a credit note or learn you wrote it off and say “do I owe you the tax portion now?” Legally, the tax portion is just part of the debt – if you forgave the debt, you forgave it all. If you wrote it off, you likely aren’t actively collecting. But if the customer later wants to clear their account, they should pay the full amount (and then you’d send the tax to the government as required).

Practical Filing: In concrete terms, how do you actually file for these adjustments?

• On your GST/HST return, find the line for “Adjustments” (line 107 on most forms). Enter the GST/HST amount of the bad debt there (as a positive number if you’re subtracting from GST payable). This will reduce your Net Tax (line 109). You don’t need to send any proof with the return, but keep it on file.

• On your QST return (if filed separately, FPZ-500, or combined form), similarly include the QST adjustment. If using Revenu Québec’s online system (ClicSEQUR), there are fields for adjustments to output tax.

• If your bad debt spans multiple reporting periods (e.g. you wrote off several invoices over the quarter), you can lump them or report separately, as long as you have the breakdown available if asked.

• Remember to not double-claim: if you already got relief via a credit note issued earlier, don’t also claim a bad debt deduction for the same amount.

By carefully following CRA and ARQ procedures for timing and reporting, you ensure your “sales tax refund for bad debt” claims are processed smoothly. Generally, these claims are processed like any other self-reported item on your return – if all is in order, your account is adjusted or refund issued. Only if something looks off will the agency contact you or audit.

Penalties and Late-Remittance Risks

A critical aspect of this topic is understanding the risks of handling it wrong. If a customer hasn’t paid, one might be tempted to not remit the GST/QST at all, or to delay remitting, to avoid out-of-pocket cost. Resist that temptation – failing to remit on time is a sure path to penalties and interest, and can compound your financial pain. Here’s what could happen in various missteps:

• Not Remitting the Tax When Due: If you simply don’t remit the GST/QST for the sale (perhaps hoping the customer will eventually pay and you’ll remit then), you are violating the tax rules. The CRA and Revenu Québec treat unremitted sales tax very seriously. For one, the amount is considered trust funds – especially in Quebec, collected (or collectible) taxes are deemed held in trust for the Crown. The penalties for late GST remittances federally are at least 1% of the amount owing, plus 0.25% per month late (up to 12 months). That means up to a 4% penalty after a year, on top of the tax. The CRA also charges daily interest at a prescribed rate (usually a few percent above market rates) on overdue amounts. Revenu Québec’s penalty regime is similar – often an initial 5% penalty on Quebec tax owing and additional per-month charges, plus interest. These might not sound huge, but remember: if you didn’t remit, the clock is ticking from the due date (which could be many months ago by the time it’s caught). Moreover, repeated failures or large amounts can lead to harsher consequences (e.g. higher penalties, audits every cycle, etc.). And notably, under both federal and Quebec law, corporate directors can be held personally liable for unremitted GST/QST, with few defenses (essentially, directors can be on the hook if the company doesn’t pay its sales tax obligations). The better path is always to remit on time, then use the proper channels (as we’re discussing) to recover tax on bad debts.

• Claiming the Refund Improperly or Too Early: Some might try to claim the GST/QST back as soon as an invoice is just late, without a true write-off. If you claim a bad debt adjustment in error (for example, you included it on your return but the debt wasn’t actually written off or was later paid), the agencies will likely disallow it on review or audit. The result: you’ll owe that tax amount back, with interest. Depending on circumstances, there could also be a penalty for making a false claim. If CRA or ARQ believes it was a deliberate over-claim, gross negligence penalties (up to 25% of the amount) could apply, though that’s rare for this scenario if it’s an honest mistake. More commonly, it’d just be treated as an assessment of unpaid tax – you’d pay interest on the period you had the refund. Example: A retailer claims $700 of GST/QST as bad debt recovery for some overdue accounts that weren’t actually written off yet. In an audit, Revenu Québec finds those accounts were still open and denies the $700 credit. The retailer would have to repay $700 plus interest from the date of the claim, and ends up with no relief for those debts. Essentially, they lost out because of jumping the gun.

• Missing the Claim Window: The flip side is a risk of inaction. If you neglect to ever claim the GST/QST on a bad debt and let the 4-year window expire, you forfeit that refund. There’s generally no penalty for not claiming (the government won’t mind keeping the money), but it’s a financial loss to you. We mention it here as a “risk” because it’s a common pitfall – companies forget or don’t realize they can recover the tax, and by the time they do (say in a cleanup years later), it’s too late. Always review old receivables and ensure any write-offs from, say, 3+ years ago have had their tax adjusted before the time limit.

• Penalties for Incorrect Tax Treatment: If during an audit, the agency finds a pattern of non-compliance – for instance, you frequently didn’t remit GST/QST on invoices that later went bad, or you repeatedly tried to claim credits without proper write-offs – they can levy penalties beyond just interest. Negligence penalties or failure to file/pay penalties can come into play. For GST, a failure to file a return or to file with the correct amount can trigger a penalty of 5% of the amount, plus 1% per month up to 12 months (this is for late filing, which is akin to not reporting the full tax). Quebec has similar structures. Also, if a taxpayer willfully evades or tries to defraud (e.g. writes off debts to affiliated companies to get tax refunds), that moves into the realm of Tax Evasion, with severe fines or even criminal charges. Those are extreme cases – the typical business just needs to worry about interest and late penalties. But it underscores that GST/QST are not the company’s money to play with; they’re government funds that must be handled correctly.

• Impact on Audit Profiling: Finally, consider that consistent problems with GST/QST remittances can make your company a target for more frequent audits. Both CRA and ARQ use risk scoring. If you repeatedly file returns with significant adjustments (like large bad debt claims, especially if later reversed or found invalid) or if you have late payments, you might get a reputational mark. This could lead to future audits not just on sales tax but possibly income tax or other areas, since it signals potential internal control weaknesses. So it’s in your interest to handle these items meticulously to avoid drawing undue attention.

In short, there is no benefit to flouting the rules on GST/QST remittance even if a customer hasn’t paid. The correct approach is to remit what’s due, then follow the proper procedure to reclaim it. If cash flow is extremely tight (say the amount of GST/QST is large and you genuinely can’t pay it without the customer’s payment), it’s better to proactively talk to the authorities for relief or payment arrangements, rather than just not paying. Both CRA and Revenu Québec have some discretion for extensions or relief in hardship cases (and during extraordinary events like COVID-19 they offered deferrals). But never assume you can just skip it. The combination of interest, penalties, and personal liability means non-compliance costs far more than the temporary benefit of holding onto the tax. At Mackisen, we’ve seen clients who initially got into trouble by delaying GST/QST payments when a few big customers defaulted – the interest and penalties piled on, creating a bigger financial issue than the bad debts themselves.

To avoid that fate, the next section lays out a step-by-step strategy to handle these situations correctly and efficiently, turning a potential loss into a tax recovery, and protecting your company in the event of an audit.

Mackisen’s Step-by-Step Strategy for Recovery and Compliance

Dealing with unpaid invoices and recovering GST/QST is a multi-step process. Mackisen CPA has developed a rigorous approach to maximize your recovery while fortifying your audit defense and ensuring proper accounting classification. Here’s our proven strategy:

1. Identify and Validate Bad Debts: We start by reviewing your accounts receivable aging and flagging invoices that might qualify as bad debts. This involves discussions with your credit/collections team to confirm which customers have defaulted or are unlikely to pay. It’s crucial to distinguish between an invoice that is simply late and one that is truly uncollectible. Mackisen professionals look for concrete indicators: the customer has declared bankruptcy or ceased operations, the account is in litigation or sent to a collection agency with poor results, or the debt is significantly past due with multiple failed collection attempts. We ensure you’ve made reasonable efforts – for example, sending final demand letters (we can provide templates), making calls, perhaps offering payment plans – and document each step. This validation stage aligns with the CRA/ARQ expectation that all practical steps were taken before concluding the debt is bad. (Tip: Keep a file for each major delinquent account with all correspondence and notes; this becomes your evidence if audited.)

2. Formal Write-Off (Proper Classification): Once an account is deemed uncollectible, we guide you to write it off correctly in your books. This means recording a journal entry debiting a bad debt expense (or an allowance for doubtful accounts) and crediting accounts receivable for the customer. The timing of this entry is important – it essentially triggers your ability to claim the tax refund. We often coordinate the write-off to align with quarter or year-end, or earlier if needed, ensuring it’s done within a reasonable period after determining the debt is bad. Proper classification here also means evaluating how you write it off: is it a pure bad debt, or is there any element of price adjustment or dispute? For example, if part of the invoice was in dispute and that’s why it wasn’t paid, sometimes issuing a partial credit note for the disputed portion and writing off the rest might be cleaner. We’ll advise on the best approach. In all cases, the full GST and QST amounts that were initially billed should remain associated with the receivable up until the write-off, so that the correct tax amount is written off too. (Never adjust the tax separately unless issuing a formal credit note; for a standard bad debt write-off, you write off the gross amount including taxes.) Mackisen will also check that you originally remitted the GST/QST on that invoice – a quick reconciliation to your past sales tax filings – to avoid any surprises. (If, say, an invoice was accidentally omitted from a past return, we’d rather correct that first before claiming a bad debt credit.)

3. Calculate and Claim the GST/QST Refund: Next, we help you compute the exact GST and QST amounts recoverable. This is usually straightforward: we take the tax that was on the invoice (or the unpaid portion of it). If multiple invoices or a batch of small bad debts are being written off, we’ll tabulate each one’s GST and QST. We ensure that any payments that did trickle in are accounted for so we only claim the unpaid portion’s tax. With these figures, we prepare the adjustments on your next GST/QST returns. Mackisen will either work with your internal accounting team or handle the filing directly. On the GST/HST return, we enter the bad debt deduction on line 107 (or the appropriate line if using GST form RC7200 or others) reducing the net tax. For QST, we include the adjustment (often under “other credits” on the return or Schedule) as an ITR. We double-check that this is done within the allowed time frame – typically the next filing, but certainly within four years of the write-off date By claiming promptly, you improve your cash flow sooner. For example, if you wrote off a debt in December, we’ll make sure your year-end Q4 return or January monthly return includes the GST/QST credits – meaning a refund or reduction in payment for you. We also retain a detailed worksheet of the claim (invoice numbers, dates, amounts, taxes) because if the tax agency reviews the filing, providing that schedule can answer many questions upfront.

4. Documentation & Audit Defense: Throughout this process, Mackisen CPA emphasizes robust documentation. We compile an “audit-ready” package for each bad debt claim. This typically includes: the original invoice (showing GST/QST charged), proof of GST/QST remittance on that invoice (e.g. a copy of the GST/QST return or ledger from that period, or at least a reconciliation of that invoice to the tax reported)evidence of customer non-payment (correspondence, notices, perhaps the customer’s bankruptcy filing or a statement of claim if you sued), evidence of the write-off entry in your accounts (general ledger entry or screenshot), and any credit notes if issued. We also include a calculation sheet for the tax refund amounts. This proactive stance means that if CRA or Revenu Québec selects your file for review, you can immediately provide a complete package that justifies the claim. In our experience, this often satisfies the auditors and avoids a long drawn-out examination. Both agencies appreciate when businesses can substantiate claims with organized records. We additionally guide you to retain these records for at least six years from the end of the year of the claim (which is the standard retention period under tax law for supporting documents). Being audit-ready is part of the Mackisen ethos – it’s far easier to assemble proof at the time of write-off than years later under stress.

5. Monitor Recoveries & Follow-Up: After claiming the GST/QST relief, we don’t just forget about the debt. Mackisen implements a monitoring process for any unexpected recoveries. If the customer later pays any portion of the previously written-off amount (which can happen – e.g. a bankrupt estate pays a few cents on the dollar, or a customer returns to solvency and settles old debts), we will catch that and ensure you declare the GST/QST on the recovered portion in the appropriate return. This typically means reversing part of the bad debt claim. While it might seem painful to give tax money back, remember that you only do so because you’re getting paid by the customer – which is a win overall. Our tracking can be as simple as flagging the customer in your system so that if any payment is received, accounting is alerted that “this was a written-off account, handle tax carefully.” We also advise on how to account for such recoveries: usually, you’d credit a “Bad debts recovered” income account (so it doesn’t inflate current sales) and then accrue the tax portion to remit. In addition, if the customer partially pays and you expect no more, we might consider issuing a credit note for any remaining balance to clear it off and formally close the matter. The goal is to keep your books tidy and in compliance going forward.

6. Audit Communication & Support: In the event that the CRA or ARQ raises questions or initiates an audit related to your bad debt claims, Mackisen steps in as your representative and defender. We handle correspondence with the auditors, presenting the documentation we prepared and answering their queries. Because we set everything up properly, we are in a strong position to defend your claim. We cite the relevant law (we might even reference the exact sections or the CRA’s own policy statements similar to how we’ve cited sources in this article) to validate that what you did is within your rights. If an auditor were to challenge, for example, “Was this really a bad debt at the time of claim?”, we can show the timeline and efforts, invoking jurisprudence like Greenfield to argue you met the standard of reasonable effort. If any adjustments are proposed by the auditor that we disagree with, we will assist you in lodging objections or appeals as necessary. Our goal is not only to help you get the refund but also to ensure it stays in your pocket by surviving any scrutiny.

By following this comprehensive approach – Identify -> Write-off -> Claim -> Document -> Follow-up – Mackisen CPA has helped numerous businesses in Montreal and across Quebec successfully recover GST and QST on bad debts without headaches. It’s a process that turns an unfortunate situation (a customer default) into at least a partial recuperation of funds. And beyond the immediate monetary benefit, our strategy instills internal best practices: stronger credit controls, better record-keeping, and awareness of tax compliance. This means you’ll be better prepared not just for handling bad debts, but for overall financial management and audit readiness.

Real Client Experiences (Case Studies)

To illustrate how this works in practice, here are a couple of anonymized real-life examples of Montreal businesses we assisted:

• Manufacturing Company Recovers $7,500 in Taxes from a Major Bad Debt: Situation: A Montréal-based manufacturing firm had a large customer in the U.S. that defaulted on payments after taking delivery of specialized equipment. The receivable was around $50,000 CAD, and the company had dutifully remitted about $2,500 in GST and nearly $5,000 in QST on that sale (since at the time of invoicing, the client was expected to pay). The customer declared bankruptcy, yielding no recovery. Action: Mackisen CPA guided the manufacturer to write off the full amount as a bad debt in the same fiscal year. We prepared the claim to recover the $7,500 (approx.) of GST/QST. We compiled proof including the bankruptcy filing and correspondence. On the next GST/QST returns, the company claimed the full refund. Outcome: The company received a substantial refund, alleviating the hit from the bad debt. When CRA later audited that year’s GST return (due to the refund amount), we presented the documentation showing the debt was uncollectible (court bankruptcy documents, ledger write-off, etc.). The audit was closed with no issues, and the CFO was impressed that even though they lost $50k in revenue, they at least got the tax portion back, improving their cash flow in a tough time.

• Retailer Learns a Costly Lesson on Timing: Situation: A Quebec retail chain had several overdue customer accounts (business clients they extended credit to). They attempted to claim about $700 in GST/QST credits for these “bad debts” on a return, but in reality, they had not yet officially written off the accounts – they were still hoping to collect and even actively pursuing some of them. They claimed the tax recovery too early, effectively. Action: Revenu Québec reviewed the claim (since it wasn’t accompanied by any credit notes or clear indications). The retailer could not prove the debts were actually bad at that point – no write-off entry or finality. Outcome: Revenu Québec denied the $700 credit. The retailer not only lost the refund but also had to pay interest on that $700 because it had reduced their tax remittance erroneously. Mackisen was later engaged to straighten out their process. We helped them implement a proper policy: they now only claim bad debt tax adjustments after an account is 100% written off and meets the criteria. We also assisted in the subsequent period to correctly write off some truly bad accounts and claim the tax then. This case underscores the importance of timing and documentation – a premature claim can cost you, whereas doing it by the book yields real savings.

Each client scenario can have its nuances – perhaps partial payments, disputes, or cross-border issues – but in all cases the principles remain: follow the rules, and you can benefit from them. The first company’s story shows the value of recovering “sales tax refund on a bad debt” in real dollars, while the second shows the dangers of missteps. We’ve guided clients from tech startups to construction contractors to professional service firms through similar situations. Most are pleasantly surprised to learn they can recover the GST/QST at all – many had written off debts in the past not realizing they left money on the table. Sharing these experiences is part of our educational mission so that your business doesn’t miss out on legitimate refunds or, worse, get hit with audit adjustments.

Common Questions on GST/QST and Bad Debts

Q: My company uses the cash method for GST/QST. Do I still need to worry about bad debt adjustments?
A: If you are a small supplier under the GST/HST cash accounting method (or the equivalent for QST), you remit tax only when you actually receive payment. In that case, an unpaid invoice wouldn’t have generated a GST remittance yet, so there’s no tax to recover. Essentially, the bad debt scenario is mitigated by the cash basis – you simply won’t pay GST/QST if you never get paid by the customer. However, note that very few corporations use cash basis (it’s mostly for small proprietorships under certain thresholds). If you are on cash basis and you inadvertently remitted GST on a sale that wasn’t paid (e.g. you switched methods or made an error), then a bad debt adjustment could apply. But generally, the bad debt recovery mechanism is primarily a concern for accrual-basis filers, who account for tax at invoicing.

Q: How long can I wait to claim the GST/QST refund on a bad debt?
A: Not long – you have a maximum of four years from the end of the reporting period in which you wrote off the debt. Practically, you shouldn’t wait at all: claim it on your next return after the write-off. Waiting doesn’t gain you anything and risks missing the window. The four-year limitation is an outside limit meant to prevent old, forgotten credits. It’s also wise not to wait because if you’re ever in a refund position, filing sooner gets you the money sooner. One thing to clarify: the clock starts when you write off the debt, not when the invoice was issued (unless those happen in the same period). So if a sale was from 2019 but you only wrote it off in 2025 after long efforts, you have until 2029 (four years from 2025) to claim. But again, best practice: claim in 2025 in that scenario. Don’t leave money on the table.

Q: The customer finally paid me after I claimed a bad debt credit last year – what do I do?
A: First, that’s great news! Second, you’ll need to report and remit the GST/QST on the payment in your next return. Essentially, you reverse the portion of the bad debt claim attributable to the amount paid. For example, if the customer pays $1,000 plus taxes this year on an invoice you had written off, you would calculate the GST (5% of $1,000 = $50) and QST (9.975% = $99.75) on that $1,000 and add those amounts on your current GST and QST returns. The laws (ETA 231(3) and AQST 446) make this a requirement. In practice, on the GST return it means you’d include the recovered GST in your “Other adjustments” (this time as an addition to net tax, since it increases what you owe). On the QST return similarly add to output tax or reduce your credits. If only a partial payment is received, only that proportional tax is remitted. It’s important to do this to stay compliant. If you don’t and the agencies find out (they could, especially if the customer claims an ITC on that payment or something), they’ll assess you for the tax plus interest. A tip: if the payment was in a different tax year, ensure your bookkeepers know to treat it properly – it might be easy to overlook that it was a written-off invoice. At Mackisen we usually flag such accounts so any incoming cash triggers an alert to handle the tax.

Q: Should I issue a credit note or use the bad debt write-off method?
A: It depends on the situation. Credit notes are best if you want to formally reduce the amount the customer owes and have them adjust their books too. For instance, if you negotiate a settlement (“pay me 50% and I forgive the rest”), you would issue a credit note for the forgiven 50%. That immediately adjusts the GST/QST: you effectively cancel half the tax on the invoice, and you reduce your output tax for that period (and the customer reduces their input claim accordingly). Credit notes are straightforward and often preferred by Revenu Québec for administrative ease, but they require that you relinquish the debt (you can’t both issue a credit note and still legally chase the customer for that portion). The bad debt deduction (no credit note) is useful if the status is more “we’ll write it off but in theory, the customer still owes it.” It preserves the debt legally (which could be handy if circumstances change; you could revoke the write-off if they suddenly want to pay). Bad debt claims also require meeting the uncollectibility test, whereas a credit note can be issued at your discretion as a pricing adjustment. A practical difference: if you have a very delinquent customer, issuing a credit note might send a signal that you’ve forgiven the debt, which you may not want to do unless you’re sure they won’t pay. In summary: Use bad debt write-off if you want to keep the claim alive and you meet the conditions; use credit note if you are formalizing a deal or error correction. Both will get you the tax relief – just don’t do both for the same portion. If unsure, Mackisen can advise on a case-by-case basis.

Q: Will claiming a large bad debt refund trigger an audit?
A: It might trigger a review, but that’s not necessarily something to fear if you’re prepared. As discussed, the agencies do pay attention to such claims. A big claim (especially if it results in a refund check to you) will often be reviewed or audited. “Review” could mean a letter asking for supporting documents before they release the refund. An “audit” would be a more in-depth look at your records. The good news is, if you followed the steps and have the documentation ready, audits in this area are usually straightforward. They just want to confirm the conditions were met. At Mackisen, we’ve seen many cases where providing the invoice, write-off entry, and proof of non-payment quickly satisfies the auditor. If it’s your first time claiming a bad debt adjustment in a significant amount, the CRA/ARQ might just be ensuring you understood the rules. Once you demonstrate that, they generally don’t harass you. Also, being consistent helps – if every year you have a small amount of bad debt credits with proper backup, that looks normal. If one year you have an outlier huge claim (maybe due to one big client bankruptcy), you’ll likely need to explain that scenario (which you can, because it’s genuine). In short, yes it can trigger a review, but with expert help and proper records, you’ll be fine. And the possibility of an audit should not deter you from claiming money you’re entitled to – just claim it correctly.

Q: The customer partially paid and I wrote off the rest – how do I handle the taxes?
A: In a partial payment situation, the bad debt provisions apply proportionately. Here’s how to handle it: Let’s say a customer owed $10,000 + tax; they managed to pay $4,000, and you’re giving up on the remaining $6,000. You would write off $6,000 as bad debt. For the $6k unpaid, you can recover the GST/QST related to that portion. How to calculate? The law’s formula essentially says take the total tax and multiply by (unpaid portion / total). If GST was $500 total on $10k, and $6k is unpaid, you recover $500 × 6/10 = $300. Same for QST (if QST was $997.50 on $10k, you’d recover $997.50 × 6/10 = $598.50). You would have originally remitted full tax on $10k. Now you’re adjusting to reflect that 60% of the invoice was bad. On your returns, claim those amounts. What about the $4,000 paid? You keep the tax on that since you received it (no adjustment needed; you already remitted it and it’s correct because you got paid). If you had issued a credit note for $6k, it would show the tax reduction explicitly. Without a credit note, you do it via the bad debt deduction. Either way, the key is you cannot recover tax on the portion that was paid, only on the unpaid portion. This ensures you and the government share the loss only on the bad part, not on what was successfully collected.

These are just a few of the common queries. Every business’s circumstances differ, so if you have additional questions – for instance, about intercompany debts, factoring of receivables, or dealing with CRA/ARQ communications – feel free to reach out. The answers often hinge on specific facts, and getting tailored advice is worth it when larger amounts of tax are on the line.

Why Mackisen CPA?

Expertise in GST/QST Matters: Mackisen CPA is not just a generic accounting firm – we specialize in the intricacies of Canadian and Quebec sales tax as they impact businesses. With over 35 years of combined professional experience in our team, we’ve encountered sales tax issues from routine compliance to complex audits. We stay up-to-date with the latest CRA and Revenu Québec regulations, budget changes, and court decisions in this area, ensuring that our advice is grounded in current law and practice.

Montreal & Quebec Focus: Being a Montreal-based firm (right near Complexe Desjardins in the core of downtown), we deal with QST issues every day. We understand Revenu Québec’s systems and procedures inside-out. This local knowledge is crucial – from knowing the nuances of filing Quebec combined returns, to dealing with ARQ auditors who may have slightly different approaches than federal auditors. We’ve successfully guided clients through Revenu Québec audits specifically on QST bad debt claims, a scenario where our familiarity with ARQ’s expectations proved invaluable.

End-to-End Service – from Prevention to Resolution: Our approach is holistic. We help prevent issues by setting up proper processes (like reviewing your A/R aging for potential bad debts, training your staff on documentation practices). When an unpaid customer situation arises, we step in to execute the recovery strategy – handling everything from bookkeeping entries to filing adjusted returns. And if the tax authorities come knocking, we serve as your audit defense team, communicating with them so you don’t have to, and resolving any queries. This cradle-to-grave service means you have continuity and a single point of contact throughout. As a result, CFOs and controllers can focus on running the business, knowing the tax angle is covered.

Proven Results and Client Satisfaction: We pride ourselves on tangible outcomes – like the case studies shared, where we recovered thousands in tax refunds for clients. We’ve saved businesses significant sums not just in recovered taxes but also in avoided penalties by correcting compliance issues. Our success is reflected in client loyalty and referrals. Many of our new clients come to us after struggling with DIY approaches or non-specialist accountants, especially when facing a challenging GST/QST audit. We step in to clean up and put them on a solid footing. The feedback we most cherish is when a client says, “We slept better knowing Mackisen was handling our CRA/Revenu Québec matter.”

Personalized and Professional: While we benchmark our technical quality against Big Four firms like Deloitte or PwC, our service comes with a personal touch. At Mackisen, partners and senior experts are hands-on with clients. You won’t be handed off to an inexperienced junior for critical issues. We take the time to understand your business model – for example, if you’re a software company vs a manufacturer, the nature of your receivables and contracts differ, and we tailor our advice accordingly. Our solutions are not one-size-fits-all; they are right-sized for your operations and scale.

Comprehensive Tax Services: Issues like unpaid customer invoices often intersect with other tax and accounting considerations (for instance, writing off a bad debt has income tax implications too). Because Mackisen offers full-spectrum accounting, tax planning, and even audit representation services, we ensure that a strategy in one area (GST/QST) aligns with others (e.g. you get the appropriate income tax deduction for the bad debt as well, and we document it for your year-end financials). We can also advise on preventative measures like credit risk management and contract terms (to mitigate future bad debts or clarify tax responsibilities). And if ever a situation escalates to legal disputes or tax court (say a bad debt claim is denied and we need to appeal), we have tax lawyers in our network to assist, as well as in-house expertise to support litigation.

In short, Mackisen CPA is your ally for navigating the complex world of “GST QST audit help” and sales tax refunds on bad debts in Montreal and beyond. We combine deep technical knowledge, practical experience, and dedication to client service. We understand that for CFOs, controllers, and owner-managers, dealing with tax authorities can be stressful – our role is to remove that burden and deliver results. When a customer doesn’t pay, you have enough of a business problem to deal with; let us handle the tax recovery so you can recoup some value and focus on moving forward.

Conclusion: Unpaid customer invoices are a fact of business life, but they need not be a total loss. By leveraging the provisions of the Excise Tax Act and Quebec’s Taxation Act (and related sales tax laws), you can recover the GST/QST associated with bad debts – provided you adhere strictly to the rules and maintain solid proof. The legal and regulatory framework is on your side when used correctly, as confirmed by both statute and court precedents. And with proactive strategies and expert guidance, you can successfully claim these refunds while avoiding audit pitfalls and penalties.

At Mackisen CPA in Montreal, we bring the expertise and strategic approach of a large firm with the personal attention of a boutique. Whether you need one-time advice on a sticky situation or a comprehensive partner to manage your tax compliance, we’re here to help turn challenges like unpaid receivables into opportunities for recovery. Don’t hesitate to reach out to our team for assistance with GST/QST issues, bad debt recoveries, or any other accounting and tax needs – our goal is to safeguard your financial interests and keep your business fully compliant in the process.