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

Every business eventually deals with unpaid invoices. When customers don’t pay, you lose revenue — but you’ve also remitted GST/QST that you collected or accrued. Luckily, CRA and Revenue Québec allow businesses to recover tax on bad debts. But the rules are strict, documentation is required, and mistakes lead to denied claims. This guide explains how to recover GST/QST on bad debts safely using Mackisen’s proven credit-adjustment system.

Why This Matters
When a customer doesn’t pay, you should not be stuck remitting taxes you never collected. Recovering GST/QST reduces your financial loss and improves your cash flow.

Legal and Regulatory Framework
Section 231 of the Excise Tax Act and the Tax Administration Act allow for GST/QST adjustment when debts are written off. Hickman Motors (1997) confirms burden of proof requirements. Lac d’Amiante (2001) enforces proper documentation.

What Happens Without Proper Bad-Debt Adjustments
Imagine writing off $40,000 in unpaid receivables over a year but forgetting to adjust GST/QST. You remitted tax on revenue that never arrived. During a CRA audit, they discover missing adjustments and deny your ITCs for related expenses due to lack of matching entries. You now owe tax on money you never earned. This scenario happens frequently because businesses do not apply proper bad-debt credits.

Learning Section: When You Can Recover GST/QST
Debt must be:
More than 180 days outstanding
Already included in your GST/QST collected
Reasonably uncollectible
Written off in your accounting records
Once conditions are met, you can claim the tax back.

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How to Recover GST/QST on Bad Debts
Step 1: Identify receivables over 180 days past due
Step 2: Write them off in your accounting system
Step 3: Prepare a credit note referencing GST/QST
Step 4: Reduce GST/QST collected on your next return
Step 5: Retain all documentation
Step 6: If collected later, reverse the credit and remit tax

Documentation Section
Aging receivables reports
Credit notes
Proof of collection attempts
Email correspondence
Write-off journal entries
GST/QST adjustment worksheets
These must be retained for six years.

Common Mistakes
Not issuing credit notes
Mismatched accounting entries
Writing off debt too early
Missing documentation
Not reversing adjustment if customer pays later

Winning With Revenue Québec and Canada
Mackisen prepares all credit notes, adjusts your GST/QST accounts, documents every write-off, and protects you during audits with a complete bad-debt recovery file.

Mackisen Service Hub
We manage receivable analysis, tax recovery, journal entries, filing adjustments, and audit preparation.

Why Mackisen
With 35+ years of CPA experience, Mackisen ensures bad-debt GST/QST recovery is accurate, compliant, and financially beneficial to your business.