Can you help with this Canadian GST/HST dilemma?
January 27, 2012 7:36 AM   Subscribe

Canadian tax question: I quoted a client for a job, and neglected to specify whether GST/HST is included. They think the price should be understood as including GST/HST. I think it should be understood as excluding GST/HST. Is there some external standard to resolve this?

Longer version:

I am a freelancer in Canada. I generally charge GST/HST on the work I do.

I recently started some work for a client. I provided them a quote for the work (call it $1000). I carelessly neglected to mention that I'd expect GST/HST to be paid, on top of the quoted amount (ie: they'd pay $1000 + $130 = $1130).

Now the client feels that they should only pay the amount quoted. That is - that they should write me a cheque for $1000, not $1130, since $1000 was the figure I named. I think they should pay write a cheque for $1130 since I am obliged to collect GST, and in Canada, when I see a price for a good or service advertised, I generally assume that GST/HST will be added.

Is there any external standard we can appeal to, to help resolve our different perspectives? Is there some legal precedent, for instance, that says that, barring any information to the contrary, people should or should not expect GST/HST would be added to an advertised or agreed price?

I'm in Ontario, if that matters.

Any information much appreciated!

(Of course, the real lesson here is that I should be more careful when I provide quotes, and make clear that GST/HST applies. I won't make this mistake again...)
posted by PersonPerson to Work & Money (23 answers total)
 
I've also been a freelancer in Canada (BC, to be precise). There's no external standard of which I'm aware, though by custom my quotes are not including GST/HST, and I've never had the problem you're having.

At bottom, this is a customer service issue. If you want to work for them again, suck it up and pay the HST. If you don't, and you think you can collect it, don't back down. Regardless, start providing written estimates and quotes that clearly state on them whether or not the quote includes GST/HST.
posted by fatbird at 7:51 AM on January 27, 2012 [3 favorites]


IANYL. You've entered into a binding contract to be paid the amount specified for the work specified. Absent any mention of tax, your customer is entitled to pay you the amount contracted for, and it's up to you to deal with the tax authorities as appropriate.
posted by Dasein at 7:58 AM on January 27, 2012 [1 favorite]


What fatbird said. Also, I try to itemize my client estimates to make it obvious whether or not HST is included.

Not to get too off-topic, but: this also may be a good indicator of whether this is a good client to work for or not. If it's a small non-profit for whom the extra $130 could break the bank, fine. But if it's a larger company that's just putting up a fight for the sake of pinching pennies, that's a warning flag. If this happened to me, I would be cautious about working with this client again.
posted by DrJohnEvans at 8:02 AM on January 27, 2012


A lot of freelancers do not charge GST either because they do not make enough or they work under the table.

It is customary for a business to include any taxes owing on quotes and invoices. That said, I'm not sure if it's absolutely required for quotes and in my experience whether it is included or not mostly depends on the formality of the quote. If I get a quick price over phone or email then it will usually not specify tax, but if I receive a formal written quote then all costs, including taxes, are listed.

The Canada Revenue Agency has a page on invoice requirements here which states: "You have to let your customers know if the GST/HST is being applied to their purchases." I cannot find anything at this time with regards to quotes though.
posted by ODiV at 8:02 AM on January 27, 2012


I'm on the other end of this, we contract stuff all the time, and can confirm that it has to be done case by case. It's probably more normal for HST to be extra, but I've seen it both ways.

This is one reason we get written quotations.
posted by bonehead at 8:22 AM on January 27, 2012


Daesin and Fatbird both have it. If I'm being quoted a price for a job, I assume that I will pay you that amount of money and you will complete the work for me. By the sounds of the comments, that may or may not be standard practice I your industry, but either way I comes down to what Fatbird said about keeping your customers. If you value this client in terms of future work, cover the tax yourself.
posted by Nightman at 8:34 AM on January 27, 2012


It was a quote, not a firm invoice. I disagree with Dasein. HST is not being paid to you as part of compensation for your work; you're collecting on behalf of the government, which taxes transfer of wealth, and then remitting to them.

As to what you should do, I think it's a judgement call. At least you now know to add a standard line to your quote template noting that the quote is exclusive of GST/HST.
posted by sillymama at 8:38 AM on January 27, 2012


Oh, and if they're eligible to deduct ITCs against the HST they pay out, it doesn't even matter to them anyway, except as a cash flow issue. That's where it would be a red flag for me as far as future business with them.

But that's not a part of your question. :)
posted by sillymama at 8:40 AM on January 27, 2012


It was a quote, not a firm invoice.

Quotes are, generally speaking, binding once accepted. The invoice serves to render an amount due and owing. You can't simply invoice for more than you've quoted.
posted by Dasein at 9:04 AM on January 27, 2012


HST has never been a part of any of my contracts. Its always always been added on after the fact. I cannot think of any above board business that would ever have the tax buried in the price ... nope .. none come to mind. If this client is in ontario/canada they should be able to use the HST/GST that you charge them to offset any HST/GST they have collected. So its not a liability for them (except cashflow)

If the client is outside of Canada, it is unclear to me that you need to charge GST/HST at all as long as the shipping/invoice address is in the foreign country. I would advise a little more research on that however.
posted by njk at 9:18 AM on January 27, 2012


Dasein, I don't disagree that the quote is binding once accepted. I disagree that tax is part of the quote, as it is not part of PersonPerson's compensation for the service provided.
posted by sillymama at 9:22 AM on January 27, 2012 [1 favorite]


I disagree that tax is part of the quote, as it is not part of PersonPerson's compensation for the service provided.

The quote is not for "compensation for the service provided"; it's for the amount that will be owing by the customer. The customer doesn't care how much of that ends up compensating you. If tax is extra, a quote should say that. Otherwise, the amount quoted is the amount owing. You can't import further terms to the contract later on. It sucks, and if I were the customer I would try to think about whether I'm being reasonable, but that's why some statement as to the tax is a routine part of any quotation.
posted by Dasein at 9:31 AM on January 27, 2012 [1 favorite]


Just call up the GST/HST folks. They're very, very helpful and very friendly.

I have to wonder though about the size of your client - it sounds like they're not even incorporated, because virtually every incorporated business (as well as sole proprietors/freelancers) are going to have a GST/HST number, so paying HST etc. is not going to be anything out of the ordinary. The beauty of GST/HST is the input tax credit - your client ought to be receiving HST tax credit back at the end of their fiscal year.

So it sounds like you're dealing with an individual, and if it's an individual it's likely they can't pay the tax. If you're dealing with an organization, it sounds like it is very, very unsophisticated.

Either way, eat the loss and drop these losers.
posted by KokuRyu at 10:02 AM on January 27, 2012


I agree with those that say that tax is usually considered an "extra," but in almost every circumstance where I have received a quote from a contractor or freelancer, the tax has been included in the final total and I would assume that to be the final price that I would pay. Dasein is right in that the customer isn't going to be concerned with what portion of the bill ends up compensating the freelancer; covering the tax obligation of their business is the business owner's responsibility.

The fact of the matter is that this is an area of ambiguity. You presented your client with a price for your services and didn't stipulate that you were then going to charge him for the taxes that you would then owe to the government. It sucks, and maybe there was a lot that should have been assumed by your client, but when there is ambiguity in a contract I would say that the benefit goes to the individual that did not write the contract.
posted by Nightman at 10:17 AM on January 27, 2012 [1 favorite]


Dasein is right in that the customer isn't going to be concerned with what portion of the bill ends up compensating the freelancer; covering the tax obligation of their business is the business owner's responsibility.

But HST is not a tax obligation of the OPs business. It is a tax charged to the client, by the government, and the OP is only collecting it on their behalf. The CRA is pretty clear on this.

Now, this is a difficult situation and a lot depends on context. If the client can claim ITCs, you'd better believe that they will in this case, so they are just trying to get $1000 worth of work for $885. In this case, stand firm.

If they could reasonably have believed that you were a small supplier and thus not required to charge HST (and they can't claim ITCs), then they do have a reasonable point (though they certainly should have confirmed first). If it is obvious that you aren't a small supplier, then they don't really have a leg to stand on.
posted by ssg at 10:33 AM on January 27, 2012


My understanding, though, is that the CRA states that it is the OPs responsibility (their words) to collect GST/HST as they as a business would be filing GST/HST returns to the CRA. When you say "collecting on behalf of the government," it's not like the OP is just doing them a favour and sending the HST off to the government. It looks like they are legally obligated to collect/send the HST, so I think it would be reasonable for the client to assume that the OP was keeping this legal responsibility in mind when they provided the quote.
posted by Nightman at 11:08 AM on January 27, 2012


Weighing in from NL here. The quotes we send out to clients never include HST. We always specify " $XXXX plus HST" to avoid scenarios like this. I'm not aware of any standard though.

Your customer is being shitty but you should probably just eat it and move on. I agree with KokuRyu that you should not do business with these folks again.
posted by futureisunwritten at 11:23 AM on January 27, 2012


Thanks for all these varying perspectives! I had thought there would be a clear answer, but thus far it still seems like there are reasonable people on both sides, and nothing super-definitive. Interesting! (At least I feel better about the fact that my client and I are disagreeing. It's clearly an issue on which reasonable people may disagree...)

To be clear: There was no invoice issued. Just an informal quote (a handshake, an informal email...). I realize this was a mistake.

To explain my point of view, which I'm sure is biased by my own perspective:

To my mind, an informal quote is similar to an advertised price. Generally - when I see a price advertised, say, in a store, etc, and there's no explicit mention of whether or not tax is included, I assume tax will be added to that. That's very much the norm with GST/HST in Canada (as opposed to, say, the VAT in the UK, where the tax is included). See, eg, this article, which advocates for a switch to tax-induded pricing. If I see something advertised at the store for $10, they can't turn around and say "actually it's $15". That's false advertising. But they can, when I get to the cashier, say "In addition to paying us the $10, you have to give us $1.30 to give to the government".

I'm really surprised there's not some external legal standard - some sort of precedent. My sense (eg - from the article I linked to above) is that for retails sales, there's at least some legal basis to the idea that advertised prices should be assumed to be exlusive of GST/HST. Is that right? If so - I wonder how that same principle might that apply or not apply to a service for a client?
posted by PersonPerson at 11:27 AM on January 27, 2012


Short answer: You made an understandable error, but if you didn't include an explicit mention of HST in your quote, you're best off eating the HST and charging a flat $1000. The customer may or may not be incorporated, they may or may not be taking advantage of a newbie error, and they may or may not do business with you again, but life is easier when you admit your error, take your medicine, and do better next time.

Long answer: I'm a freelancer in Ontario who earns more than $30,000 a year (or whatever the current cutoff is) so I owe the government HST on my billing. The vast majority of my clients are incorporated and every single one of my written quotes explicitly adds HST to the total so that there are no surprises for either of us.

The only time I didn't include HST explicitly was when I did some one on one training for a very sweet retired lady. I quoted her a round figure per hour, she paid me in cash, I reported the cash (minus HST) as billable hours to the government, and I paid the HST owing to the government the next spring.

HST in Ontario is now 13% (PST and GST bundled), where it used to be 5% (GST only on services). I had worried that this change would hurt business, but, of course, the fact that almost all of my customers collect and pay HST means that it all evens out among us. And it is kind of cool that I can now use 13% of my purchases rather than 5% as Input Tax Credits.
posted by maudlin at 11:29 AM on January 27, 2012


I'm really surprised there's not some external legal standard - some sort of precedent. My sense (eg - from the article I linked to above) is that for retails sales, there's at least some legal basis to the idea that advertised prices should be assumed to be exlusive of GST/HST. Is that right? If so - I wonder how that same principle might that apply or not apply to a service for a client?
I think the difference between a mass-produced good and a custom service is relevant here. If you're selling hockey skates in a store, and the customer only finds out about the additional HST at the cash, it's very easy for them to decide to walk away and not buy the skates. While you might have liked to sell those skates right then to that person, another customer is likely to come along. No big deal.

But if the customer comes to you for, say, a web site, you do the work, and, to their eyes, then stick them with an additional 13% on the invoice, they're going to feel blind-sided and pressured to agree to that charge. A lot of people may grudgingly pay it (and never do business with you again, badmouth you to everyone, and generally do you no long-term good), while others, like this client, will fight you.

When you sell mass market goods, your customers are pretty fungible. When you sell services (or custom goods), it is your responsibility as the seller, I believe, to clearly communicate the final cost to the customer. You do not want either one of you to be left unhappy at the end of the transaction with a custom product that sold for less than a fair price (your perspective) or more than a fair price (your customer's perspective) and which almost certainly can't be resold at a sufficiently high price to make up the difference.
posted by maudlin at 12:12 PM on January 27, 2012


If you're selling hockey skates in a store, and the customer only finds out about the additional HST at the cash, it's very easy for them to decide to walk away and not buy the skates. While you might have liked to sell those skates right then to that person, another customer is likely to come along. No big deal.

But if the customer comes to you for, say, a web site, you do the work, and, to their eyes, then stick them with an additional 13% on the invoice, they're going to feel blind-sided and pressured to agree to that charge.


True. But if I order a meal in a restaurant, the price on the menu usually does not include GST/HST. By the time the bill comes, I have already ordered and eaten. Usually there is GST/HST added to the advertised price on the meal, and I'm on the hook for that charge.

Anyhow. I'm not sure it's helpful for me to be in this thread arguing my side. I'm sort of more hoping to find something that can help me and the client settle this.

(And to be clear - the client isn't exactly refusing to pay, nor am I exactly insisting. We just have different initial understandings of the situation, and I'm trying to find some extra information to help resolve this...)
posted by PersonPerson at 12:59 PM on January 27, 2012


I'm not sure it's helpful for me to be in this thread arguing my side.

It's not, but that's more because you need to recognize that this isn't an issue of appealing to a third party or standard. As you say, it's a misunderstanding, and resolving this is a customer relationship issue, not a "legal" issue. Approach it from that perspective.
posted by fatbird at 1:45 PM on January 27, 2012


Your client might be assuming the quote is a proforma invoice where all charges including taxes are quoted. They're often used for future billing expenditures by companies for calculating import/export duties etc.

and make clear that GST/HST applies

When you do I'd write "plus applicable taxes" and include an expiry date for the quote. That way you're better protected if the government raises the tax rate, or you want to increase your rates in the future.
posted by squeak at 4:49 PM on January 30, 2012


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