GST/QST Rules for Mixed-Use Expenses: How to Prorate Business and Personal Costs Correctly

Introduction

Many Quebec businesses — especially self-employed workers and small corporations — use the same assets for both business and personal purposes. Vehicles, home offices, cellphones, and even software subscriptions often fall into this “mixed-use” category.
While these expenses may generate GST/QST input tax credits (ITCs/ITRs), Revenu Québec closely monitors how businesses prorate them. Incorrect percentages, missing logs, or unsupported assumptions are among the most common triggers for audits, reassessments, and denied credits.
This guide explains how mixed-use rules work and how to calculate business-use percentages that withstand CRA and Revenu Québec review.

Legal and Regulatory Framework

Under the Excise Tax Act (GST) and the Quebec Taxation Act (QST), businesses may claim ITCs/ITRs only on the portion of the expense reasonably attributable to commercial activities. Registrants must:

• Maintain records that support business-use percentages.

• Prorate expenses according to actual business use.

• Keep mileage logs, usage reports, and proof of payment.

• Recalculate percentages when usage changes.

• Exclude personal-use components.

Authorities may deny credits under:

• ETA s. 169(4) — missing or incomplete documentary support

• ETA s. 286 / QSTA s. 24 — failure to maintain adequate books

• QSTA s. 39 — ineligible ITRs

• Penalty provisions for false statements, negligence, or repeated miscalculations

Key Court Decisions

Canadian jurisprudence emphasizes that:

• Business-use percentages must be supported by objective evidence, not estimates.

• Courts routinely reject “rounded numbers” like 50%, 75%, or 90% without detailed logs.

• Mileage logs must be contemporaneous and accurate.

• Vehicle deductions are frequently reduced when personal use is undocumented.

• Personal expenses cannot be recharacterized as business use without evidence.

These decisions make it clear that documentation is the controlling factor.

Why CRA and Revenu Québec Target These Issues

Authorities audit mixed-use expenses aggressively because:

• Many taxpayers overclaim business use.

• Vehicle and cellphone expenses are high-risk due to common personal use.

• Home-office claims often lack proper square footage calculations.

• Businesses rarely update usage percentages year to year.

• Large ITC/ITR claims or repeated refund requests trigger automated risk flags.

Industries most frequently audited include construction, delivery services, creative professions, consulting, and real estate.

Mackisen Strategy

We help clients calculate accurate, defensible mixed-use percentages and maintain audit-proof records.

1. Detailed Usage Breakdown

We review:

• Vehicle mileage logs

• Phone call/text usage data

• Home office square footage

• Software account usage

• Equipment and tool logs

2. Business vs Personal Allocation

We determine which components are business-use only, which are personal, and which must be prorated. Examples:

• Vehicle fuel, insurance, and repairs

• Internet and cellphone bills

• Home-office utilities

• Software subscriptions

• Computers and equipment

3. Documentation Requirements

We help implement:

• CRA-approved mileage logs

• Monthly usage summaries

• Proof of business purpose for each claim

• Square footage and workspace calculations for home office

4. Annual Percentage Review

We verify that usage percentages reflect actual use and update them each year to avoid audit red flags.

5. Audit Defence

If Revenu Québec questions mixed-use allocations, we prepare:

• Explanation letters

• Usage logs

• Supporting documentation

• Legal arguments referencing ETA and QSTA

Real Client Experience

A self-employed contractor claimed 90% business use for his vehicle without a mileage log. Revenu Québec denied over $6,500 in GST/QST credits.
Mackisen reconstructed a compliant mileage schedule based on contracts, locations, and timelines, reducing the assessment by nearly 60%.
The case illustrates that credible reconstruction and proper methodology can prevent heavy penalties.

Common Questions

1. Can I estimate business use without logs?
No. Estimates without evidence are routinely denied.

2. How do I calculate home office use for GST/QST?
Use square footage or time-based allocation, depending on the nature of the workspace.

3. Can I claim 100% of my cellphone?
Only if you have two separate lines or can prove the phone is used exclusively for business.

4. Do I need to keep logs every year?
Yes. Authorities require updated records for each reporting period.

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.

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Learn how to correctly prorate mixed-use expenses for GST/QST. Mackisen CPA Montreal explains business-use percentages, documentation rules, and audit-proof methods to prevent ITC/ITR denials.