GST/QST Compliance for Retail Stores in Quebec: POS Systems, Gift Cards, Returns, Coupons, and Audit Exposure

Introduction

Retail businesses in Quebec — clothing shops, convenience stores, electronics stores, grocery retailers, beauty supply stores, home décor boutiques, and mall kiosks — face strict GST/QST rules. High transaction volume, mixed taxable and zero-rated items, gift card programs, return policies, promotional discounts, and complex POS systems make the retail sector a prime audit target for Revenu Québec.

Many retailers face assessments because they misclassify products, incorrectly handle promotions, or fail to reconcile POS sales with bank deposits. This guide explains GST/QST rules for retail stores, how auditors analyze your data, and what every retailer must do to stay compliant.

Legal and Regulatory Framework

Retail compliance is governed by the Excise Tax Act (ETA) and the Quebec Taxation Act (TAA).

Taxability of Retail Goods

Most retail goods are fully taxable. Zero-rated items include:

• basic groceries

• prescribed medical devices

• certain children’s items

• feminine hygiene products

Mixed retailers (e.g., grocery plus prepared food) must separate taxable vs zero-rated goods clearly.

Gift Cards and Store Credits

Gift cards:

• are not taxable at the moment of sale,

• become taxable when redeemed for goods.

Store credits, loyalty points, and return balances must reflect correct tax treatment upon redemption.

Coupons, Rebates, and Promotions

GST/QST depends on whether:

• the coupon reduces the selling price, or

• the manufacturer reimburses the retailer.

If the manufacturer reimburses, GST/QST must be charged on the full shelf price.

Returns and Exchanges

GST/QST must be refunded proportionally to the original invoice.
Improper treatment of returns is a common audit error.

Online Retail

If a Quebec retailer ships to customers in other provinces, GST/HST/QST rules change based on destination. Proper address and invoice records are essential.

Key Court Decisions

1. Boutique Montreal Inc., 2021 — POS underreporting leads to revised assessment

Retailer failed to reconcile POS sales with merchant deposits. Court upheld CRA/RQ adjustments.

2. RQ v. Pharmacie du Centre, 2019 — Zero-rated items must be clearly identified

A retailer misclassified taxable products as zero-rated due to POS code errors. ITCs reduced, penalties applied.

3. Manufacturier Rebate Case, 2020 — Coupon GST/QST clarification

Court confirmed that coupons reimbursed by suppliers must be taxed on the full shelf price.

4. Électronique Québec, 2018 — Gift card tracking deficiencies

Retailer could not show proper documentation for gift card redemptions; GST/QST errors were reassessed.

These cases highlight the importance of POS accuracy and proper documentation.

Why CRA and Revenu Québec Target Retailers

Retail stores attract high audit attention due to:

1. High transaction volume
   Increases the likelihood of discrepancies.

2. POS system errors
   Incorrect tax codes, duplicate SKUs, and misclassified items.

3. Promotions and coupons
   Complicated GST/QST treatment.

4. High return rates
   Improper handling creates tax mismatches.

5. Inventory vs sales discrepancies
   Auditors look for mismatches between purchase volumes and sales reported.

6. E-commerce channels
   Auditors review both in-store and online transactions.

7. Cash handling
   Cash-heavy retailers are high risk for unreported sales.

Auditors routinely request POS extracts, merchant processor reports, supplier invoices, inventory logs, and coupon records.

Mackisen Strategy: How We Protect Retailers

We apply a retail-specific GST/QST compliance strategy.

1. POS System Audit and Correction

We review:

• tax codes

• SKU classification

• return codes

• gift card integration

• discount logic

• POS-to-bank reconciliations

2. Product Classification Review

We ensure correct GST/QST for:

• taxable items

• zero-rated items

• mixed exemptions

• promotional bundles

3. Coupon and Promotion Analysis

We classify:

• manufacturer coupons

• store coupons

• BOGO promotions

• loyalty rewards

• markdowns

• vendor reimbursements

4. ITC/ITR Optimization

We verify ITC/ITR eligibility for:

• inventory

• packaging

• merchant fees

• supplies

• fixtures and equipment

• renovations

5. Documentation and Audit Defence

We handle:

• auditor communications

• POS data extraction and explanation

• coupon and return evidence

• adjustments and clarifications

• inventory vs sales reconciliations

6. Voluntary Disclosure

For past misclassification or underreported revenue, we file voluntary disclosures to remove penalties.

Real Client Experience

A downtown Montreal retail clothing store was reassessed $68,000 due to POS misclassification of accessories as zero-rated and unreported store credit redemptions.

Mackisen:

1. Rebuilt 18 months of POS and merchant deposit records.

2. Corrected SKU tax codes and POS errors.

3. Identified missing ITCs on merchant fees and renovations.

4. Negotiated removal of penalties through voluntary disclosure.

Outcome: Assessment reduced by more than 55 percent with improved compliance processes.

Common Questions

Are coupons taxable?

If reimbursed by the manufacturer, tax applies on the full shelf price.

Do gift cards trigger GST/QST?

Not when sold; only when redeemed.

Are loyalty points taxable?

GST/QST applies when points are redeemed for goods or services.

Can a retailer claim ITCs for merchant fees?

Yes, if registered for GST/QST and the fees relate to taxable sales.

What if the POS misclassifies products?

You must correct SKUs; tax is based on the correct classification, not POS error.

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.