Written by: Darryl Rankin

If you are in a business that charges expenses (disbursements) to clients, you need to understand how to treat the GST and HST. Otherwise, you can easily end up with a costly GST/HST assessment — or you could be cheating your clients!

As a business, you are typically entitled to “input tax credits” (ITCs) to recover all GST or HST that you pay on your costs of doing business. These ITCs are deducted from the GST and HST you have collected or billed, when calculating “net tax” that you remit to the CRA with your GST/HST return.

When putting disbursements on an invoice to a client, you must first determine whether the disbursement was incurred “as agent” of the client. This determination is crucial, and you must be clear as to the answer before you issue your invoice.

For example:

  • Travel expenses, postage, telephone, couriers, and photocopying are not generally incurred as “agent.” They are your business’s expenses and are inputs to (part of the cost of) the services you provide.
  • Paying an expense that is really the client’s own expense is a payment made as “agent.” For example, when a lawyer pays land transfer tax on behalf of a client purchasing a home, that payment is made as the client’s agent.

An expense incurred as agent should not go into your business’s financial records as an expense of the business. It is money laid out that is recoverable from the client (i.e., an asset, sometimes called a “recoverable disbursement”).

The CRA has issued Policy Statement (P-209R) and Info Sheet (GI-197) delineating when an expense is incurred “as agent.” In the 2010 Merchant Law Group decision, the Federal Court of Appeal generally upheld the CRA’s approach but set the determination of “agent” somewhat differently: expenses incurred as agent are those where the client is explicitly liable to the third party to pay the fee (the exact parameters of this rule have yet to be determined further by the Courts).

If the Expense is Incurred as Agent

An expense that is not incurred as an agent (e.g., travel) is considered an input to your business’s services. Therefore, your business should claim any input tax credit on such an expense. You then bill the pre-GST/HST amount of the expense as a disbursement, added to your fee before charging GST or HST. If you charge GST/HST on your services, you then charge the tax on the total, including the (pre-GST/HST) disbursement.


You are carrying on business as an engineer. You travel on a client matter and pay a Calgary hotel bill of $500 plus $25 GST. You want to have the client reimburse you. You are charging $20,000 to the client for your work. The client is in Alberta, so you are charging the client 5% GST.

You should claim the $25 GST as an input tax credit on your own GST/HST return and record the disbursement as $500, not $525.

You then bill the client as follows:

Fees $20,000.00
Disbursements: Hotel +   $500.00
Subtotal $20,500.00
GST @ 5% +  $1,025.00
Total $21,525.00


The net result may appear to be the same as simply charging $525 to the client as the disbursement (in addition to your fee of $20,000 plus $1,000 GST) and not adding GST to the disbursement. However, if you do that, the CRA can assess you for not collecting GST on the disbursement (you may not be able to claim the offsetting input tax credit if that happens).

Note also that under this method, taxable disbursements can become non-taxable or taxable at a different rate, and non-taxable disbursements can become taxable. What matters is the GST or HST status of your business’s fees, not what rate of tax, if any, you paid on the expense you incurred.

Thus, suppose in the above example you are billing a non-resident client and not charging GST/HST on your services. Your subtotal would still be $20,500, with no tax on top, for a total bill to the client of $20,500. Meanwhile, you have properly claimed the $25 input tax credit. As a result, no net GST applies to the hotel bill you paid. The $500 hotel bill is included in your disbursements, and the client does not pay GST on it (even though you did).

Conversely, suppose your client is in Ontario, so you charge the client 13% HST on your services. Your subtotal would again be $20,500, but 13% HST applies to the entire amount. As a result, the Calgary hotel bill (originally $500 + $25 GST) is rebilled by you as $500 plus, in effect, $65 HST (as part of the HST on your total fees). Since the hotel bill was an input to your services, not an expense you incurred as agent of your client, this is the correct result. The client effectively pays $565 for your hotel stay (if the client is a business claiming input tax credits, it will claim a credit for the $65, along with the HST on your fees).

If the Expense is Incurred as Agent

An expense incurred as agent is simply a “pass-through.” You show it on your invoice after all GST/HST is calculated, and you include whatever GST or HST was on the expense — or nothing if there was none. You do not record the amount in your financial records as an expense; rather, it is an asset (a disbursement recoverable from the client). You do not claim an input tax credit for the GST or HST charged on the expense because you did not incur the expense — you simply paid it as your client’s agent. You also do not add GST or HST to the disbursement. The client pays whatever GST or HST was originally charged. In effect, it’s as though you weren’t in the picture and the client incurred the expense directly.

Thus, for expenses incurred as agent, the original GST/HST status is preserved and passed through to the client. For example, a government fee that is exempt, and which is the client’s expense, is passed through “as is” even though your fees are taxable.


This is a tricky area, and many businesses and even tax professionals get it wrong. Yet if you do not properly comply, you expose yourself to assessment for up to four years of past GST/HST, plus interest, on all your disbursements. And if you mistakenly charge GST or HST on a disbursement when you should not, or charge GST or HST on top of a tax-included amount, then you are cheating your clients.

If you have been reporting GST/HST on disbursements incorrectly in the past, it may be possible to eliminate any net cost by way of a Voluntary Disclosure. This is best done with the assistance of a knowledgeable tax professional.