GST/QST Obligations for Construction and Renovation Businesses in Quebec: Taxable Supplies, ITCs/ITRs, and Audit Triggers

Introduction

Construction and renovation contractors — general contractors, electricians, plumbers, drywall installers, flooring installers, remodelers, and subcontractors — face some of the strictest GST/QST enforcement in Quebec.
Because construction projects involve large invoices, multiple subcontractors, and high material costs, even small mistakes in GST/QST reporting can trigger aggressive audits and costly reassessments.
This guide explains the GST/QST rules for construction services, materials, subcontractors, mixed-use projects, and how to stay fully compliant.

Legal and Regulatory Framework

Under the Excise Tax Act (GST) and Quebec Taxation Act (QSTA):

• Construction and renovation services are taxable supplies unless a specific exemption applies.

• Contractors must charge GST (5%) and QST (9.975%) on labour, materials, and combined contracts.

• Subcontractors must also charge GST/QST and provide compliant invoices.

• Registrants may claim ITCs/ITRs only for expenses used in taxable commercial activities.

• Zero-rating may apply for exports or certain Indigenous projects with strict documentation.

• Builders and developers face special rules under ETA Sections 254–256 for new residential properties.

Authorities enforce through:

• ETA s.165/QSTA s.16 (tax on taxable supplies)

• ETA s.221/QSTA s.22 (obligation to collect and remit)

• ETA s.169(4)/QSTA s.39 (documentation rules for credits)

• ETA s.286/QSTA s.24 (books and records obligations)

Key Court Decisions

Courts have held that:

• Contractors who fail to collect GST/QST remain fully responsible for the unpaid tax.

• Subcontractor invoices must contain GST/QST registration numbers — without them, ITCs/ITRs may be denied.

• “Cash jobs” are aggressively penalized due to unreported taxable supplies.

• Contractors cannot claim ITCs/ITRs on personal-use or residential-exempt portions of projects.

• Improper allocation between commercial and residential components results in major reassessments.

These decisions emphasize strict compliance in an industry with significant audit exposure.

Why CRA and Revenu Québec Target These Issues

Construction is one of the highest-risk industries because:

• Cash transactions are common.

• Subcontractor invoices are often incomplete or non-compliant.

• Projects may involve mixed-use properties.

• Contractors frequently delay registration past the $30,000 threshold.

• Large ITC/ITR claims raise red flags.

• Material purchases are often coded incorrectly in bookkeeping systems.

• Labour-only invoices sometimes omit GST/QST by mistake.

Industries targeted: general contracting, renovation, plumbing, HVAC, landscaping, framing, roofing, electricians, and finishers.

Mackisen Strategy

We help construction businesses implement ironclad GST/QST compliance procedures.

1. Registration & Contract Structure

We ensure:

• Correct GST/QST registration

• Taxable vs non-taxable project identification

• Proper wording in contracts with customers and subcontractors

2. Subcontractor Invoice Review

We verify:

• GST/QST registration numbers

• Valid invoice formats

• Proof of payment

• Eligibility for ITCs/ITRs

3. Project-Based Allocation

For mixed-use or complex projects, we calculate:

• Commercial vs residential allocation

• Pro-rated ITCs/ITRs

• Capital vs operating expense classification

4. Bookkeeping & Documentation

We implement:

• Project tracking systems

• Digital receipt management

• Monthly GST/QST reconciliation

• Tax coding accuracy in QuickBooks or similar tools

5. Audit Defence

If Revenu Québec selects your file for review, we prepare:

• Valid documentation packages

• Subcontractor verification

• Legal arguments referencing ETA/QSTA

• Representation from start to finish

Real Client Experience

A renovation contractor failed to charge GST/QST on a $52,000 project, believing residential renovations were exempt.
Revenu Québec assessed over $8,000 in tax and $2,500 in penalties.
Mackisen corrected the filings, adjusted subcontractor invoices, and negotiated a reduced penalty based on first-time error and corrective measures.
This case demonstrates how common misunderstandings can lead to costly reassessments.

Common Questions

1. Are residential renovations taxable?
Yes — unless linked to a specific exemption (rare).

2. Do subcontractors need to charge GST/QST?
Yes — if registered.

3. Can contractors claim ITCs/ITRs on materials?
Yes — for the portion used in taxable commercial activities.

4. What about mixed-use buildings?
Expenses must be prorated based on commercial vs residential use.

5. What if a customer refuses to pay GST/QST?
You are still legally required to remit. Contract wording must be corrected.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps construction and renovation businesses stay compliant while recovering the taxes they’re entitled to. Whether you're issuing invoices, paying subcontractors, or defending a GST/QST audit, our expert team ensures precision, transparency, and protection from audit risk.

SEO Setup

Primary Keywords: GST QST construction Quebec, renovation tax rules Quebec, contractor GST QST, subcontractor invoices Quebec, Mackisen CPA Montreal
Secondary Keywords: construction audit Quebec, taxable renovation services, ITC ITR construction, contractor sales tax compliance
Meta Description:
GST/QST rules for construction and renovation businesses in Quebec — learn how taxable supplies, subcontractor invoices, materials, and ITCs/ITRs must be handled to avoid audits and penalties.