GST-QST – Names on invoices for ITC-ITR claims: zero tolerance?

Background

In order to claim the input tax credits (ITC – GST/HST) or input tax refunds (ITR – QST), people who receive goods and services taxable for GST/HST and QST purposes must comply with certain documentation conditions and requirements, i.e.:

• they must be registered;
• the goods and/or services received must be used, consumed or supplied in the course of commercial activities;
• the documentary evidence substantiating the claims must include the prescribed information, including information relating to the name of the actual recipient.

For example, any invoice in the amount of $150 or more must be issued in the name of the right company, indicating the exact business name or name of its authorized agent or representative.

The documentation requirements for GST/HST and QST purposes, especially those relating to the recipient’s name on the invoice, are audited and assessed regularly by Revenu Québec (RQ). RQ has often refused to grant ITCs-ITRs when it deemed that the actual recipient was not clearly identified on the purchase invoice. This was the case when, for example, the recipient’s real name or the name under which the recipient conducted business was not indicated correctly (incomplete name, name of another company of the associated group, etc.) For RQ, these anomalies could have resulted in duplicate ITC and ITR claims.
Following these assessments, the parties involved (suppliers and recipients) will have to make corrections, which can create friction between them and lead to unexpected additional costs (interest and penalties).

Revenu Québec offers flexibility

In 2014, RQ announced in a variety of forums that it will allow some flexibility in statutory tax audits (which usually cover the last 3 or 4 years), when audits involve documentation issues resulting in denied ITC and ITR claims. More specifically, the flexibility will enable auditors to review other factors to establish whether they help confirm the actual recipient, despite incomplete documentation.

Accordingly, RQ will examine documents other than invoices (contracts, purchase orders, proof of payment, etc.) to determine the actual recipient of a supply. RQ will also consider the existence of an authorized agent or representative.

RQ announced that it may also show flexibility for a first offence only in cases involving:

• minor errors (unambiguous);
• a first-time error (prior periods);
• a high volume of transactions (possibility of adjustment through a single document).

As you may have noted, the announced relief relates more specifically to prior periods subject to an audit. For current periods, however, RQ clearly indicated that it will deny ITC and ITR claims when the invoices (or other documents) are non-compliant. In these cases, RQ will show no leniency and recipients will be subject to an assessment. They will then have to request corrections from suppliers and file a new claim with compliant invoices, if they are the actual recipient.

So don’t wait to comply with these tax rules. Take this opportunity to review your file at Quebec’s Registre des entreprises to add, if possible, the various business names used by your company.

Gérard Durocher, CPA, CA
Senior Manager - Taxation and Commodity Taxes
Raymond Chabot Grant Thornton

Member of the technical working group on taxation and commodity taxes of the Quebec CPA Order