Freight and GST/HST: What You’re Missing

Freight and GST/HST: Where It Goes Wrong

When goods are shipped into Canada, GST is applied at the border (typically 5% on commercial imports). If the shipment is destined for a registered Canadian entity, like a Canadian subsidiary, that company is entitled to claim a refund in the form of an input tax credit (ITC). But that only happens if:

• The tax is captured and identified properly on invoices
• The payer is registered and entitled to claim it
• The appropriate documentation is in place

Now consider the next step: those same goods are moved within Canada, perhaps from a distribution center in one location to retail locations across the country. Each one of those domestic freight movements also includes GST or HST, depending on the province.

This is where we repeatedly see breakdowns:

• US-based freight teams don’t recognize the taxability of these charges
• Freight consolidators summarize charges without enough tax visibility
• Systems omit or suppress the tax coding
• Clerks processing freight invoices don’t understand Canadian tax rules

Whether it’s consumer goods, raw materials, component parts or finished products, we’ve seen the same issues with clients across industries. One company discovered its freight tax field had been disabled in its freight management system for over two years, costing millions of dollars. Another relied on a third-party freight consolidator whose summaries didn’t isolate Canadian taxes, leading to a major gap in input tax credit recovery.

Why It’s So Common and So Costly

Many companies centralize freight operations in the US for efficiency. They often rely on US teams or offshore shared services groups to process freight invoices and manage payables. In these scenarios, Canadian tax visibility is often lost, buried in mountains of transactions and obscured by systems built with US tax logic. It’s not negligence—it’s a blind spot.

What makes this problem worse? Volume. We’ve encountered situations involving tens of thousands—or even millions—of transactions over a four-year period. Missed tax on each individual freight charge adds up fast. We’ve recovered:

• $1M+ in overlooked freight tax over a four-year period for one manufacturer
• Nearly $5M from improperly coded charges for another organization
• Multiple seven-figure refunds across industries where systems or assumptions failed

These aren’t audit findings—they’re recoveries from tax that was paid but never claimed. All fully legitimate and supported by documentation.

How DMA Helps

Our experts help companies uncover and recover freight-related GST/HST by identifying exposure points, conducting detailed reviews of invoicing patterns, and analyzing how freight tax is treated across systems and processes. Based on our extensive experience with various freight management systems, we utilize technology to reconstruct transaction audit trails to support legitimate input tax credit (ITC) claims. We frequently uncover misclassified or overlooked charges caused by system configuration issues, vendor reporting gaps, or a general lack of familiarity with Canadian tax rules among US-based or offshore teams.

Whether freight is managed centrally outside of Canada, handled through third-party consolidators, or simply processed at high volume with little tax visibility, these issues are common and can result in millions of dollars in lost recovery.