How to Account for GST/QST on Export Sales (Zero-Rated Supplies)

Introduction
When your Quebec-based business sells goods or services to clients outside Canada, those transactions may qualify as zero-rated supplies meaning they are taxable at 0% GST and QST. While no tax is charged to the foreign buyer, these sales must still be reported correctly on your GST/QST returns to comply with Revenu Québec (ARQ) and the Canada Revenue Agency (CRA).

Understanding how to account for export sales is crucial. Many businesses mistakenly treat zero-rated exports as exempt sales, which can lead to denied Input Tax Credits (ITCs) or Input Tax Refunds (ITRs) during an audit. At Mackisen CPA Montreal, we help Quebec exporters maintain full compliance while maximizing their tax recoveries. This guide explains how to record, document, and report GST/QST on export sales properly.

Legal and Regulatory Framework
Export sales and zero-rated supplies are defined under:

• Excise Tax Act (Canada) s.1 & Schedule VI — lists goods and services that qualify as zero-rated for GST/HST.

• Taxation Act (Quebec) s.18 & Regulation 107R2 — defines QST zero-rated supplies and treatment of exports.

• Tax Administration Act (Quebec) s.34 — requires businesses to retain export documentation as proof for QST exemption.

• Revenu Québec Policy Bulletin TVQ.205.1 — provides guidance on zero-rated exports and supporting documentation.

Under these laws, exports are taxable transactions at a 0% rate, meaning you charge no GST or QST but remain entitled to claim ITCs and ITRs on your business expenses.

Step-by-Step: How to Account for GST/QST on Export Sales (Zero-Rated Supplies)

1. Determine if Your Sale Qualifies as a Zero-Rated Export
   A sale qualifies as zero-rated if:

   • The goods are physically shipped outside Canada before title transfers to the buyer.

   • The buyer is not a resident of Canada and takes delivery outside the country.

   • Services are supplied to non-residents and used primarily outside Canada (e.g., consulting, software design, training).

   • No part of the sale is consumed or delivered in Quebec.

   Transactions that do not qualify include:

   • Sales to Quebec or Canadian residents, even if they pay from a foreign account.

   • Goods delivered in Quebec before export.

2. Issue an Invoice Without GST or QST

   • Clearly indicate:

     • “Zero-Rated Supply – GST/QST at 0%” on the invoice.

     • Buyer’s name, address, and country.

     • Terms of delivery (e.g., FOB Port of Montreal).

   • Include your GST (RT) and QST (TQ) registration numbers.

   • Verify that the buyer’s address confirms they are outside Canada.

3. Collect and Retain Proof of Export
   To justify the zero-rating, you must have proof that the goods left Canada. Acceptable documents include:

   • Bill of lading, cargo manifest, or export declaration.

   • Courier or freight forwarding receipts.

   • Customs export clearance (CBSA B13A or equivalent).

   • Signed contract specifying delivery outside Canada.

   • Payment documentation from a non-resident source.

   For services, maintain contracts showing the work was provided to and used outside Canada.

4. Record the Sale in Your Accounting System

   • Record the transaction under a “Zero-Rated Sales” account.

   • Do not include GST or QST in the sale amount.

   • Retain currency conversion documentation if invoicing in USD or another currency.

   • Label the transaction for easy reference during filing (e.g., “Export Sale – USA”).

5. Report Zero-Rated Sales on Your GST/QST Returns

   • GST Return (CRA):

     • Report zero-rated exports as part of Line 101 (Total Sales and Other Revenue).

     • Do not include tax on Lines 103 or 105.

     • Continue to claim ITCs on related purchases under Line 106.

   • QST Return (Revenu Québec FPZ-500-V):

     • Report zero-rated sales on Line 201 (Total Sales).

     • Do not include them in Line 202 (QST Collected).

     • Continue claiming ITRs for expenses related to exports under Line 208.

   These entries confirm the transaction is taxable but at a 0% rate.

6. Claim Input Tax Credits (ITCs) and Input Tax Refunds (ITRs)
   Even though you charge no GST or QST, you can still recover all sales tax paid on business expenses related to exports, such as:

   • Manufacturing materials.

   • Freight and logistics services.

   • Customs brokerage.

   • Professional and marketing fees.

   Keep all supplier invoices showing GST/QST paid and valid registration numbers.

Jurisprudence and Legal Insights

• Canderel Ltd. v. Canada (SCC 1998) — filings must reflect economic reality, ensuring accurate classification of taxable vs. zero-rated transactions.

• Lac d’Amiante du Québec Ltée (SCC 2001) — Revenu Québec has the authority to require proof of export as a condition for zero-rating.

• Westcan Freight Systems Ltd. v. The Queen (FCA 2009) — confirmed that proof of export must demonstrate actual shipment outside Canada, not just intention.

• Hickman Motors Ltd. v. Canada (SCC 1997) — CRA assessments are presumed correct until taxpayers provide documentation proving exemption.

These rulings highlight that complete export documentation is essential to defend zero-rated sales.

Documentation: Mackisen’s Export Compliance Checklist
At Mackisen CPA Montreal, we ensure every export client maintains an audit-ready file containing:

• Sales invoices labeled “Zero-Rated – Export.”

• Proof of shipment and export clearance.

• Payment confirmations from foreign buyers.

• Contracts and correspondence proving non-resident status.

• Accounting records reconciling sales and QST filings.

All documentation is organized under a six-year retention policy per Tax Administration Act s.34.

How CRA and Revenu Québec Audit Export Sales
Auditors typically review:

• Shipping and customs documents to confirm exports left Canada.

• Buyer residency and delivery addresses.

• Accounting entries and currency conversions.

• ITC/ITR claims to ensure they correspond to zero-rated transactions.

• Timing of invoices and export documentation.

If proof of export is missing, auditors may reclassify sales as taxable, resulting in backdated GST/QST plus interest.

Winning With CRA and Revenu Québec
At Mackisen CPA Montreal, we help exporters maintain full compliance while maximizing tax recovery:

1. Zero-Rating Review – We assess all sales to confirm eligibility.

2. Documentation Preparation – We compile customs, shipping, and payment records.

3. Filing and Reconciliation – We align export data with FPZ-500-V and CRA returns.

4. ITC/ITR Optimization – We identify all recoverable GST/QST on related expenses.

5. Audit Defense – Our CPA auditors and tax lawyers respond to CRA and ARQ inquiries directly.

Mackisen Service Hub: Export Tax Compliance Specialists
Our Mackisen Service Hub provides comprehensive GST/QST management for exporters, including:

• Zero-rated transaction tracking and reconciliation.

• Documentation archiving and audit readiness.

• Quarterly GST/QST filing and refund management.

• Customs and freight accounting support.

Our bilingual CPA auditors and tax lawyers trained at McGill, Université de Montréal, and Concordia University bring expertise in both Canadian and international tax compliance.

Real Client Example
A Quebec manufacturer exporting to the U.S. was incorrectly charging QST on international shipments. Mackisen CPA corrected the invoicing, filed amended returns, and recovered $54,000 in unnecessary remittances. We implemented a zero-rated documentation system that passed Revenu Québec audit with no adjustments.

Why Mackisen
With over 35 years of combined CPA and legal experience, Mackisen CPA Montreal ensures your export sales are compliant, documented, and financially optimized. We help you apply the zero-rated rules correctly, maximize tax recovery, and stay fully protected under both CRA and Revenu Québec regulations.

When you export with Mackisen, every shipment leaves with confidence accurate, compliant, and fully supported by professional documentation.