In our previous article, we touched on a few points concerning your customers’ insolvency rules, in order to protect you as much as possible. In the case of bad debts, GST and QST must be added.
Under normal circumstances, the seller remits taxes to Revenu Québec based on the invoice date or according to the terms of a written agreement. They are then cashed when the customer makes payment. Under current circumstances, the usual recovery of taxes on payment may be compromised, as customers will not be able to pay you.
You have two options:
– Issuing a credit note
– Take a deduction for bad debts
Here are the rules that apply to both options for recovering taxes you have remitted to Revenu Québec without having collected from your customers.
Credit notes
A seller can issue a credit note to adjust taxes. He must clearly indicate on the document that it is a credit note, as well as the amount of the tax reduction. The customer who receives the credit note must remit the tax credits he has claimed.
The credit note must be issued within four years of the original invoice date.
Bad debts
A vendor may request an adjustment of the tax paid to Revenu Québec if the following conditions are met:
- The vendor has made a taxable sale to an arm’s length party;
- The receivable must be written off the books;
- The tax must already have been remitted to Revenu Québec;
- The seller must have made collection efforts.
This last condition is often questioned by tax authorities.
These are the collection efforts that are accepted by the tax authorities:
- Formal notice by registered mail or letter from a lawyer;
- Collection agency;
- Document received from the trustee (creditor arrangement or bankruptcy).
- Send account statement(s);
- Follow-up(s) by phone or email.
