The current economic circumstances straining the liquidity of Canadian businesses will no doubt result in suppliers being required to grant rebates to recipients. This leads to the question as to whether suppliers are required to issue a credit note to the recipient and to adjust their GST/QST filings.
Surprisingly, suppliers are not required to issue a credit note in such circumstances. However, if the supplier chooses to issue a credit note, then the credit note must include the following information :
- a statement or indication that the document is a credit note;
- the name of the supplier (or the name under which the supplier does business) or the name of the intermediary (or the name under which the intermediary does business) as well as the GST and QST registration numbers of the supplier or the intermediary;
- the name of the recipient (or the name of the recipient’s business) or the name of the recipient’s duly authorized agent or representative;
- the date of issue of the credit note;
- the amount of the adjustment, refund or credit of GST/QST in respect of which the credit note is issued.
A supplier opting to issue a credit note for which the GST/QST was charged but not yet collected must subtract the portion of GST/QST that was calculated on the amount by which the consideration is reduced. If the supplier has already charged and collected the full amount of the tax from the recipient, the supplier is required to reimburse the recipient that portion of the tax that is commensurate to the amount of the reduction.
What should a recipient do when it is entitled to a rebate from a supplier who has chosen not to issue a credit note? If the recipient has already paid the GST and QST to the supplier, the recipient can request a refund of the GST/QST from the tax authorities within two years from the date the rebate was granted by the supplier. Of course a refund is only relevant to the extent that the recipient is not otherwise able to recoup the excess tax via the input credit mechanism or if the input credits have not yet been claimed by the recipient.
The rules governing credit notes can be quite subtle and thus a case-by-case analysis should be conducted to ensure there are no missteps with regard to GST/QST.
Miller Thomson is closely monitoring the COVID-19 situation to ensure that we provide our clients with appropriate support in this rapidly changing environment. For articles, information updates and firm developments, please visit our COVID-19 Resources page.