How to Recover GST/QST on Bad Debts (When Customers Don’t Pay)

Introduction

When a customer doesn’t pay an invoice that already included GST (Goods and Services Tax) and QST (Quebec Sales Tax), your business may be left out of pocket — not only for the sale itself but also for the taxes you’ve already remitted to Revenu Québec and the Canada Revenue Agency (CRA).

Fortunately, you can recover the GST and QST previously remitted on bad debts once the amount is officially written off in your books.

This guide from Mackisen CPA Montreal explains how to claim back GST/QST on bad debts, what documentation you’ll need, and how to stay compliant with the rules under the Excise Tax Act and Quebec Sales Tax Act.

Legal and Regulatory Framework

Bad-debt tax recovery is governed by:

• Excise Tax Act (R.S.C. 1985, c. E-15) — for GST.

• Quebec Sales Tax Act (R.S.Q., c. T-0.1) — for QST.

Both laws allow you to recover GST and QST that you previously collected and remitted when a sale becomes uncollectible and is written off as a bad debt in your financial records.

In Quebec, this process is referred to as a credit for tax on bad debts (crédit de taxe pour créances irrécouvrables).

Learning Insight

You can only recover GST/QST after the receivable has been written off — not merely when it becomes overdue. The write-off must be recorded as an expense or adjustment to accounts receivable in your books.

Step-by-Step: How to Recover GST/QST on Bad Debts

Step 1 — Confirm the Debt Is Truly Uncollectible

You can claim recovery only after making reasonable efforts to collect. Examples include:

• The customer has declared bankruptcy or ceased operations.

• A collection agency or lawyer confirms non-recovery.

• Repeated payment notices have failed.

Keep all evidence of these efforts, such as correspondence, invoices, and collection reports.

Step 2 — Write Off the Debt in Your Accounting Records

When the account is deemed uncollectible, record it in your books as a bad debt expense and remove it from your accounts receivable.
This confirms that the revenue and tax amounts previously reported are no longer collectible and can now be recovered.

Step 3 — Claim the Tax Recovery in Your Next Return

For GST:
On your next GST/HST return, include the GST recoverable as an Input Tax Credit (ITC) on line 108. This will offset your GST payable for that period.

For QST:
On your next QST return (Form FPZ-500-V), include the QST recoverable as an Input Tax Refund (ITR).

This reduces the total tax you owe or increases your refund.

Example:
A $5,000 invoice (plus GST and QST) becomes uncollectible.
GST was 5% ($250). QST was 9.975% on $5,250 ($523.69).
When you write off the invoice, you can recover $250 in GST and $523.69 in QST as credits on your next return.

Step 4 — Maintain Proof and Documentation

If audited, you’ll need to show:

• The original invoice with tax breakdown.

• Proof that GST/QST were previously remitted.

• The accounting entry showing the write-off.

• Evidence of reasonable collection efforts.

Keep all documentation for six years after the year the adjustment was made.

Step 5 — If the Customer Later Pays

If a customer pays part or all of a previously written-off amount, you must reverse the recovery and remit GST/QST on the payment received.

Example:
If you recover $1,000 from a $5,000 bad debt, you must remit $50 in GST and $99.75 in QST on that recovered portion.

Learning Insight

The GST/QST system is symmetrical — when you lose money, you get relief; when you later recover the money, you must repay the tax portion.

Common Mistakes to Avoid

• Claiming recovery before officially writing off the receivable.

• Forgetting to adjust both GST and QST.

• Using estimates instead of documented figures.

• Ignoring subsequent payments after a write-off.

• Lacking proof of collection attempts.

Learning Insight

Revenu Québec may reject claims lacking evidence of write-off or recovery calculation. Keep detailed documentation and reconcile all tax accounts quarterly.

Real Quebec Business Example

A Montreal printing company wrote off $18,000 in unpaid invoices and successfully recovered over $3,400 in GST/QST through proper adjustments.

Another retailer tried to claim recovery for overdue invoices that weren’t written off yet. Revenu Québec denied the claim, costing them over $700 in unclaimed credits.

Lesson: Document, write off, and file your recovery properly — timing and paperwork matter.

Compliance Checklist

Do

• Write off uncollectible accounts before claiming recovery.

• Claim recovery as ITCs (GST) and ITRs (QST) in your next return.

• Keep complete records of invoices, payments, and collection efforts.

• Reverse recovery if a payment arrives later.

• Retain all records for six years.

Don’t

• Claim recovery for invoices still under collection.

• Ignore GST or QST portions of bad debts.

• Forget to remit taxes on later recoveries.

• File without supporting documentation.

Mackisen Strategy

At Mackisen CPA Montreal, we help businesses recover taxes on bad debts by:

1. Reviewing your accounts receivable to identify eligible bad debts.

2. Preparing accurate tax adjustments and filing recovery claims.

3. Managing communications with Revenu Québec and CRA.

4. Tracking future recoveries for accurate reporting.

Our CPA team ensures you reclaim every eligible dollar — while remaining fully audit-ready.

Why Mackisen

With over 35 years of combined CPA expertise, Mackisen CPA Montreal helps Quebec businesses manage GST/QST adjustments and recoveries efficiently. We ensure accuracy, transparency, and full compliance with Revenu Québec and CRA rules.