How to Issue QST Refunds or Credits to Customers (for Returns)

Introduction
If your business operates in Quebec, you must handle QST (Quebec Sales Tax) refunds and credits correctly when customers return goods, cancel services, or receive adjustments. Issuing these refunds properly not only keeps your books accurate it ensures compliance with Revenu Québec (ARQ) regulations and prevents costly audit issues.

At Mackisen CPA Montreal, we help Quebec businesses manage QST refunds efficiently and legally. This guide explains when to issue a QST refund, how to document it, and how to adjust your next FPZ-500-V QST return to stay fully compliant.

Legal and Regulatory Framework
Refunds and credits are regulated by:

• Taxation Act (Quebec) s.434–s.438 — governs how suppliers must handle returned goods and canceled transactions.

• Tax Administration Act (Quebec) s.59(3) — imposes interest and penalties for incorrect or late remittances.

• Revenu Québec Policy Bulletin TVQ.203.1 — outlines refund procedures for returns, exchanges, and credits.

• Excise Tax Act (Canada) s.232(1) — applies to GST refunds and establishes parallel procedures for QST.

You must refund or credit customers for the exact QST originally charged, and you can then deduct that same amount from your next QST remittance.

Step-by-Step: How to Issue QST Refunds or Credits for Returns

1. Confirm That the Refund or Adjustment Qualifies
   QST refunds or credits apply when:

   • The customer returns taxable goods or cancels a taxable service.

   • You issued an overcharge or pricing error.

   • The transaction was voided before completion.

   • The customer received a discount or post-sale adjustment affecting the original QST.

   Refunds do not apply to exempt sales (e.g., residential rent or financial services).

2. Issue a Credit Note or Refund Invoice

   • Prepare a credit note or refund invoice referencing the original transaction.

   • Include:

     • Original invoice number and date.

     • Customer’s name and address.

     • Item description and quantity returned.

     • Amount before tax, QST (9.975%), and total refund.

     • Your QST registration number (TQ…).

   • Mark clearly “Credit Note – QST Adjustment” on the document.

   This serves as official proof that the refund was processed correctly.

3. Reimburse the Customer the Full Amount Including QST

   • Refund the full tax-inclusive amount to the customer (price + QST).

   • For partial refunds, return QST proportionally.

   • The refund must be issued in the same method of payment (cash, credit card, or electronic transfer).

   Example:
   A customer returns a $200 product + $19.95 QST = $219.95 total.
   Refund = $219.95.

4. Record the Refund in Your Accounting System

   • Reverse the sale and associated QST collected.

   • Use your accounting software (e.g., QuickBooks, Sage, Xero) to issue the credit and tag it as a QST adjustment.

   • Update your QST ledger for the refund period.

5. Report the Refund on Your Next QST Return (FPZ-500-V)

   • In your next filing, reduce the total QST collected (Line 202) by the amount refunded.

   • Keep the refund documentation to justify the adjustment.

   • Do not include refunds in Input Tax Refunds (ITRs); they are treated as reductions of QST collected, not as expenses.

   Example:

   • QST collected last period: $10,000

   • Refund issued: $500

   • Line 202 on next return = $9,500

6. Maintain Proper Documentation
   Revenu Québec requires written proof for all QST adjustments. Keep:

   • Copies of original invoices and credit notes.

   • Proof of refund payment (bank, POS, or card statement).

   • Customer communication confirming the return or adjustment.

   • Accounting records showing the QST reduction entry.

   Retain these documents for six years under Tax Administration Act s.34.

Jurisprudence and Legal Insights
Case law supports the importance of proper refund documentation:

• Canderel Ltd. v. Canada (SCC 1998) — filings must reflect commercial reality and verified data.

• Hickman Motors Ltd. v. Canada (SCC 1997) — once reassessed, taxpayers bear the burden of proof to substantiate refunds or credits.

• Lac d’Amiante du Québec Ltée (SCC 2001) — confirmed Revenu Québec’s authority to demand refund proof during audits.

Incomplete or undocumented refunds can lead to reassessments for unremitted tax.

Documentation: Mackisen’s QST Refund File System
At Mackisen CPA Montreal, we create a QST Refund File for every client that includes:

• Copies of invoices and credit notes.

• Refund proof and bank confirmations.

• FPZ-500-V adjustment documentation.

• Correspondence with customers and Revenu Québec.

• Summary spreadsheet of all QST adjustments for each quarter.

This ensures every refund is audit-proof and traceable.

How Revenu Québec Audits Refunds and Credits
Revenu Québec auditors typically review:

• Credit notes and supporting receipts.

• Proof that refunded items were returned or canceled.

• Accounting adjustments made in your QST ledger.

• Matching between refund transactions and reductions in QST returns.

• Proper application of proportional QST on partial refunds.

Missing refund records often lead to denied adjustments and penalties under Tax Administration Act s.59(3).

Winning With Revenu Québec
At Mackisen CPA Montreal, we help businesses implement consistent and compliant refund systems:

1. Refund Verification – We confirm refund eligibility and correct tax adjustments.

2. Credit Note Creation – We design standardized refund documentation templates.

3. Ledger Reconciliation – We align your accounting entries with your QST returns.

4. Audit Defense – Our CPA auditors and tax lawyers prepare complete refund files for verification.

5. Penalty Relief – We file relief applications under s.94.1 if refunds were mishandled in good faith.

Mackisen Service Hub: Refund Compliance & Audit Support
The Mackisen Service Hub provides turnkey support for refund management, including:

• QST and GST refund processing workflows.

• Audit-proof credit note templates.

• Quarterly reconciliation of refund adjustments.

• Revenu Québec and CRA audit response.

Our bilingual CPA auditors and tax lawyers graduates of McGill, Université de Montréal, and Concordia University specialize in ensuring your business refunds are precise, compliant, and professionally documented.

Real Client Example
A Montreal electronics retailer issued customer refunds but failed to adjust its QST remittance. Revenu Québec reassessed $22,000 in unpaid taxes. Mackisen CPA identified all credit notes, filed amended returns, and prepared an adjustment report accepted by Revenu Québec. The reassessment was withdrawn, and future refund tracking was automated.

Why Mackisen
With over 35 years of combined CPA and legal experience, Mackisen CPA Montreal ensures every refund or credit you issue is compliant, documented, and accurately reflected in your filings. We help you recover customer trust, maintain accurate books, and protect your business from tax risk.

When you work with Mackisen, every refund is not just a customer service action it’s a compliance success.