If you write off an amount as a bad debt, the GST and QST already reported and remitted on the amount can be recovered through an adjustment on your GST return and QST return. The debt must be owed by a person dealing at arm's length with you. The adjustment must be made on a return filed within four years after the deadline for filing the return for the reporting period in which the bad debt was written off. Note that a doubtful debt is not considered a bad debt under the GST and QST systems.
Under the GST and QST systems, certain requirements must be met for a debt to be deemed a bad debt. For example, efforts must have been made to recover the debt and the debt must be written off the books of account. You must also keep the supporting documents respecting the bad debt. For more information, refer to the current version of interpretation bulletin TVQ. 444-1, Bad debts, available on the Publications du Québec website.
For sales that are not taken into account using the Quick Method, you can make an adjustment on your GST return and QST return to recover the taxes you remitted in relation to a bad debt.
You provide a service to a customer and bill him for a total amount of $149.46 ($129.99 + $6.50 GST + $12.97 QST).
You remit the full amount of the taxes to us, but the purchaser pays you only $30.
You write off the rest of the amount as a bad debt. You can make GST and QST adjustments on your returns, calculated as follows:
A month later, you receive a payment of $60 on the $119.46 that you wrote off as a bad debt. You must therefore calculate and remit the GST and QST applicable to the $60 payment.