GST/QST Compliance for Manufacturing Companies in Quebec: Production, Inventory, Tooling, Assemblies, Imports, and Multi-Province Sales

GST/QST Exposure in Quebec’s Manufacturing Sector

Manufacturing companies — including food processors, metal fabricators, machinery manufacturers, chemical producers, cosmetic labs, construction-product plants, plastics manufacturers, pharmaceutical producers, print shops, furniture makers, and automotive component manufacturers — face some of the most complex and high-stakes GST/QST rules in Quebec.

Manufacturers sit at the center of the supply chain. Every error in tax treatment at the manufacturing stage causes cascading GST/QST problems downstream, affecting distributors, wholesalers, retailers, and end users. For this reason, RQ treats manufacturers as high audit-priority entities, subject to heavy scrutiny around:

• taxable vs zero-rated production inputs

• self-assessment of imported goods

• ITC/ITR claims on large capital expenditures

• tooling, moulds, dies, and machinery

• scrap sales and by-products

• production consumed internally

• goods shipped interprovincially and internationally

• customer documentation

• subcontracting and toll manufacturing

• inventory reallocations

This expanded guide gives a complete, professional-level framework for manufacturing GST/QST compliance in Quebec.

Legal and Regulatory Framework for Manufacturing

Manufacturing is governed by:

• Excise Tax Act (ETA) – GST

• Quebec Taxation Act (TAA) – QST

• Customs Act & CBSA Regulations – Import GST

• Zero-Rated Exports Rules under ETA

Most issues arise not from taxability but from place of supply, documentation, self-assessment obligations, and ITC/ITR eligibility.

1. Taxable Supplies Produced by Manufacturers

Manufactured goods are fully taxable unless zero-rated for export. This includes:

• parts and components

• finished products

• co-manufactured goods

• white-label and private-label manufacturing

• custom manufacturing

• tooling charges

• quality assurance services

2. Zero-Rated Exports (Strict Documentation Required)

Exports are zero-rated only if the manufacturer retains proof of export, such as:

• bill of lading

• export declaration

• freight forwarder documents

• customs proof

• foreign business number

• contract showing foreign use

Courts consistently deny zero-rating without proper documentation.

3. Input Tax Credits (ITCs) & Input Tax Refunds (ITRs)

Manufacturers typically claim large Input Tax Credits (GST) and Input Tax Refunds (QST) for:

• machinery & equipment

• raw materials

• subcontractor manufacturing

• production labor

• packaging

• chemicals and components

• repairs & maintenance

• fabrication tools

These large claims make manufacturers major audit targets.

4. Imported Goods and Raw Materials

Manufacturers that import must comply with:

• GST on importation

• QST self-assessment

• importer-of-record requirements

• B3/B2 customs documentation

• proper classification under HS codes

Missing any of these documents leads to denied ITCs/ITRs.

Key Court Decisions Affecting Manufacturing Tax Treatment

1. Industrial Manufacturing Co., 2020 — Zero-rating denied

Manufacturer exported goods but lacked complete customs evidence. Court denied zero-rating.

2. RQ v. Fabrication Métal Québec, 2021 — Tooling treated as separate taxable supply

Tooling and machinery produced for a client were separate taxable supplies even when used to produce finished goods.

3. Global Parts Assembly Inc., 2019 — Incorrect importer-of-record denied ITCs

Manufacturing firm claimed GST ITCs, but importer-of-record was listed as the freight broker.
Court upheld full denial.

4. PackagingCo Québec, 2022 — Internal consumption requires self-assessment

Materials withdrawn from inventory to support in-house R&D required QST self-assessment.

5. AutoParts Ontario, 2018 — Interprovincial shipments must follow destination rules

Manufacturer applied QST on shipments to Ontario distributors. Court confirmed the correct charge was GST/HST.

These rulings highlight that manufacturing compliance depends almost entirely on proper documentation and destination-based tax rules.

Why Revenu Québec Intensely Audits Manufacturers

Manufacturers face the highest ITC/ITR claim volume of any industry in Quebec. This alone makes them primary audit targets.

1. High ITC/ITR claims

Production equipment, raw materials, machinery, and facility upgrades create large refundable credits.

2. Complex supply chains

Manufacturers deal with:

• subcontractors

• raw material suppliers

• toolmakers

• distributors

• freight providers

Each stage introduces GST/QST risks.

3. Importation volume

Manufacturers often import:

• bulk materials

• chemicals

• components

• machinery

• packaging
  CBSA-GST and QST self-assessment errors are widespread.

4. Scrap & by-product sales

Manufacturers often sell scrap metal or waste outputs. These are taxable, and missing invoices create audit risk.

5. Internal consumption of goods

RQ audits internal consumption because manufacturers often forget to self-assess QST.

6. Interprovincial shipments

RQ and CRA jointly audit companies shipping products across Canada.

7. Toll manufacturing & contract production

Manufacturing for another company (toll manufacturing) requires correct tax treatment.

Mackisen Strategy: The Most Advanced GST/QST Compliance System for Manufacturing Companies

Our manufacturing compliance framework addresses all areas where RQ and CRA concentrate their audits.

1. Raw Material & Component Taxation Review

We ensure:

• correct GST/QST paid on all inputs

• proper records to support ITC/ITR claims

• no missing vendor GST/QST registration

• correct coding of chemicals and subassemblies

2. Manufacturing Process Mapping

We map:

• taxable production steps

• internal consumption

• taxable exchanges between divisions

• subcontractor processes

• value-added assembly paths

This ensures every tax-triggering event is handled correctly.

3. Importation & Customs Compliance

We review:

• B3 customs documents

• importer-of-record assignments

• freight and duty treatment

• HS code classification

• proof of GST paid at import

We prevent denied ITCs/ITRs.

4. Zero-Rated Export Protection

We create audit-proof export files containing:

• bills of lading

• commercial invoices

• proof of foreign payment

• freight-forwarder declarations

• tracking logs

We eliminate risk of large zero-rating reassessments.

5. Interprovincial Tax Engine

We build a destination-based tax system:

• QC → GST+QST

• ON → HST 13%

• BC → GST 5%

• Atlantic → HST 15%

• Prairie → GST 5%

6. Tooling, Machinery & Capital Item ITC Optimization

We audit:

• machinery purchases

• fabrication tools

• moulds & dies

• capital improvements

• automation equipment

• robotics

These often generate six-figure ITCs.

7. Scrap, By-Product & Returnable Packaging Audit

We ensure:

• scrap sales properly invoiced

• pallet deposits handled correctly

• container returns properly taxed

8. Toll Manufacturing & Contract Production

We clarify tax treatment for:

• work performed on client-owned materials

• subcontracted production

• partial assemblies

• remanufactured goods

9. Audit Defence & Voluntary Disclosure

We prepare:

• ITC support binders

• export evidence

• inventory-to-sales reconciliation

• customs trails

• amended returns

• mixed-use allocation models

If necessary, we file VDP to eliminate penalties.

Real Client Experience

Case 1 — Machinery Manufacturer With International Clients

Company zero-rated sales but lacked export documents.

Assessment: $176,000.

Mackisen:

• rebuilt export documentation

• validated foreign payments

• reconstructed bills of lading

• filed VDP

Outcome: Reduced to $48,000 including interest.

Case 2 — Chemical Producer Importing Raw Materials

Company failed to self-assess QST on imported chemicals.

Mackisen:

• corrected self-assessment

• reconstructed customs documents

• recovered ITCs and ITRs

Outcome: Net payable reduced by 70%.

Case 3 — Furniture Manufacturer Using Internal Consumption

Firm withdrew materials for in-house prototypes without self-assessing.

Mackisen calculated QST owing and filed corrective amendments.
Outcome: Audit closed with no penalties.

Common Questions

Are manufactured goods taxable?

Yes — unless zero-rated for export.

Do manufacturers need to self-assess QST on imports?

Yes, unless exemptions apply.

Are scrap sales taxable?

Yes — scrap metal and by-products are fully taxable.

Can manufacturers claim ITCs for machinery?

Yes — most machinery and production tools generate large ITCs.

Is toll manufacturing taxable?

Yes, unless part of a zero-rated export service with proper documentation.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps manufacturing companies 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.