HST on Disbursements

If you are in a business or profession where you charge disbursements or expenses to clients, are you confident that you are properly accounting for the HST on these charges to your customer?

When charging for disbursements on your invoice to your client, you must first determine whether the disbursement was incurred “as agent” of the client. Paying an expense which is really the client’s own expense is a payment made as “agent”.

Expense NOT incurred as “agent”

An expense that is not incurred as agent is considered an input to your services and you should claim any HST input tax credits yourself on such expense. You then bill the pre-HST amount of the expense as a disbursement, added to your fee before charging HST.   If you are an HST registrant and you charge HST on your services, you then charge HST on the total including the (pre-HST) disbursement.

Expense incurred as “agent”

If you are billing a client for an expense as “agent”, this expense should be treated like a “pass through” expense.  In other words, you include the total amount you paid (including the HST) on your invoice to your client.  You do not claim an HST input tax credit for the HST that you were charged on the expense, because you did not incur the expense.  When an expense is incurred as “agent”, you are simply paying for the total expense on behalf of your client and the original HST status is preserved as passed through to your client.

As with most HST matters, it is important to understand the commercial terms of the transaction.  Identifying whether a disbursement was billed to your client “as agent” is crucial – if you do not do it properly, you are exposing your business to an assessment of past HST, plus interest and penalties on all your disbursements or you could be mistakenly charging HST to your clients.

Be sure to contact Ritchie Shortt & Tully LLP if you have any questions or would like our assistance!

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