RETAILER’S CHECKLIST: CHARGING GST/QST ON SALES PROMOTIONS

Promotions, discounts, coupons, bundle deals, and seasonal sales are essential marketing tools for retailers in Quebec. But every price reduction must still follow strict GST and QST rules. Many retailers unintentionally misapply sales tax when offering promotions — leading to incorrect filings, refund issues, customer disputes, or Revenue Québec audits. This checklist explains how to correctly charge GST/QST on retail promotions so your business stays compliant, profitable, and audit-ready.

Understanding how tax applies to each type of promotion ensures accurate pricing, proper remittance, and clean reconciliation at filing time.

LEGAL AND REGULATORY FRAMEWORK

The Excise Tax Act (GST) and the Quebec Taxation Act (QST) require retailers to charge tax based on the net consideration the amount a customer actually pays after eligible discounts. However, not all discounts are treated equally. Certain promotions may require tax to be calculated on the full price depending on who funds the discount and how it is structured.

Retailers must maintain proper documentation for discounts, promotional pricing, coupons, rebates, and manufacturer incentives to support the tax treatment applied.

KEY COURT DECISIONS

Courts have made important rulings about sales promotions:
• Discounts funded by retailers reduce the taxable price.
• Coupons funded by manufacturers require tax to be calculated on the full price.
• Promotional bundles may require tax allocation across taxable and exempt items.
• Free items in a promotion must still be accounted for properly.

In several cases, businesses were reassessed for charging tax incorrectly during promotional periods. Judges ruled that retailers must determine whether the discount reduces the taxable amount or not.

WHY REVENU QUÉBEC TARGETS RETAIL PROMOTIONS

Promotions are a common source of GST/QST errors because retailers:
• manually override tax settings during sales
• misunderstand coupon rules
• misallocate tax on bundles
• apply discounts incorrectly
• fail to update POS tax codes
• neglect to collect QST on “free” items
• misreport discounted totals vs. tax collected

Retailers with frequent, high-volume promotions (Black Friday, Boxing Day, clearance events, seasonal sales) are especially monitored.

RETAILER’S CHECKLIST: CHARGING GST/QST ON SALES PROMOTIONS

Follow this checklist whenever offering discounts or special pricing.

1. Identify the type of promotion

Different promotions have different tax rules. Clarify whether the promotion is:
• a retailer discount
• a manufacturer coupon
• a price-match discount
• a buy-one-get-one (BOGO) offer
• a bundle or combo deal
• a loyalty reward promotion
• a free gift with purchase

2. Determine who funds the discount

If you, the retailer, fund the discount:
• GST/QST applies on the reduced price

If a manufacturer funds the discount (manufacturer coupon):
• GST/QST applies on the full price, even if the customer pays less

3. Avoid manual tax overrides

Manual tax overrides in POS systems often cause:
• incorrect tax collection
• mismatched sales reports
• filing errors
Ensure POS settings calculate tax automatically after discounts.

4. Apply tax correctly on BOGO promotions

BOGO (Buy One, Get One) offers require careful tax treatment:
• If the second item is “free,” tax applies based on allocation across both items
• If it’s “50% off,” tax applies on the discounted price
Allocate value fairly between items to avoid audit adjustments.

5. Bundles and combo deals

For bundles with multiple items:
• apply tax separately for taxable vs. exempt items
• allocate bundle price proportionally
Incorrect allocations can lead to under-collected tax.

6. Loyalty points and reward programs

If loyalty discounts are retailer-funded:
• tax applies on the reduced price

If funded by a third party:
• tax may apply on the full price

7. Gift cards are not taxable

Tax is charged only when the gift card is redeemed, not when sold.

8. Rebates and post-sale discounts

If a rebate is applied during checkout:
• calculate tax on the reduced price

If the rebate is applied after the sale (mail-in rebate):
• tax is calculated on the full price

9. Coupons

Two key types:
• Store coupon (retailer): tax on reduced price
• Manufacturer coupon: tax on full price

Always verify the source of the coupon.

10. Free gifts with purchase

“Free” items must still be recorded with value allocation. GST/QST must be applied based on the taxable value of the transaction.

11. Update POS system before the promotion

Never rely on manual changes.
Update:
• tax codes
• promotional pricing
• discount settings
• product bundling rules

12. Keep documentation of promotions

Maintain:
• promotion details
• advertisement copies
• discount structure
• manufacturer coupon agreements
• POS configuration notes
These documents help support GST/QST treatment during audits.

13. Reconcile tax collected after major promotions

Large promotions produce high transaction volume. Reconcile:
• sales totals
• discounts applied
• GST/QST collected
Discrepancies should be corrected before filing your return.

MACKISEN STRATEGY

Mackisen CPA helps retailers configure promotions properly in their POS systems, apply correct GST/QST rules, and avoid costly errors. We analyze promotional structures, review discount policies, and create tracking systems for bundles, coupons, and free-item promotions. Our team also assists with reconciliations after major sales events and ensures clean, compliant filings.

REAL CLIENT EXPERIENCE

A fashion retailer misapplied QST during BOGO events. Mackisen corrected tax allocation, filed adjustments, and prevented a large reassessment.

A grocery store used manufacturer coupons but calculated tax incorrectly on the discounted price. Mackisen updated procedures and trained staff.

A boutique offering free gifts failed to allocate tax properly. Mackisen corrected their POS setup and avoided future errors.

COMMON QUESTIONS

Are retailer-funded discounts taxable
Tax applies on the reduced price.

Are manufacturer coupons treated differently
Yes. GST/QST applies on the full price.

How should I tax BOGO promotions
Allocate value fairly and apply tax accordingly.

Do free gifts require tax
Yes. Free items must have a taxable value assigned.

Can promotions trigger an audit
Yes. High-volume sales and misreported discounts often lead to reviews.

WHY MACKISEN

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures retailers apply GST/QST correctly during promotions, preventing under-collection, filing errors, and audit exposure. We help configure systems, train staff, and review promotional tax structures in advance.