June 2024 Newsletter

Are you in a business or profession where you charge disbursements or expenses to your clients? If so, 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!

(We assume you understand the basics of the GST/HST. As a business, you are normally 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 your bill 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.

The CRA has published Policies P-209R, “Lawyers’ Disbursements”, and P-182R, “Agency”, to help with this determination (they are available on, as well as Info Sheet GI-197. For example:

  • Travel expenses, postage, telephone, couriers and photocopying are not normally incurred as “agent”. They are your own expenses, and are inputs to (part of the cost of) the services you provide.
  • Paying an expense which 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 who is purchasing a home, that payment is made as the client’s agent.

In the 2010 Merchant Law Group decision (2010 FCA 206), the Federal Court of Appeal upheld the CRA’s approach to the GST/HST disbursements but set the determination of “agent” differently: expenses incurred as agent are those where the client is explicitly liable to the third party to pay the fee (paragraph 25). The exact parameters of this rule have yet to be determined.

If the expense is not incurred as agent

An expense that is not incurred as an agent (e.g., travel) is considered an input to your services. You should claim any input tax credit yourself 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 travel on a client matter and pay a Calgary hotel bill of $100 plus $5 GST. You want to have the client reimburse you. You are charging $1,000 to the client for your work. The client is in Alberta, so you are charging 5% GST rather than HST.

You should claim the $5 GST as an input tax credit on your own GST/HST return, and record the disbursement as $100, not $105.

You then bill the client as follows:

Fees $1,000.00
Disbursements: hotel 100.00
Subtotal 1,100.00
GST @ 5% 55.00
Total $1,155.00

The net result may appear to be the same as simply charging $105 to the client as the disbursement (in addition to your fee of $1,000 plus $50 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 or may not be able to claim the offsetting input tax credit if that happens.)

Note also that, with 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 fees, not what rate of tax you paid on the expense you incurred.

Thus, suppose in the above example you are billing a non-resident client and not charging GST on your services. Your subtotal would still be $1,100, with no GST on top, for a total bill to the client of $1,100. Meanwhile, you have properly claimed the $5 input tax credit. As a result, no net GST applies to the hotel bill you paid. The $100 hotel bill is included in your disbursements and the client does not pay GST on it.

Conversely, suppose your client is in Ontario, so you charge the client 13% HST on your services. Your subtotal would again be $1,100, but 13% HST applies to the entire amount. As a result, the Calgary hotel bill (originally $100 + $5 GST) is rebilled by you as $100 plus $13 HST. 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 $113 for your hotel stay. (If the client is a business claiming input tax credits, it will claim a credit for the $13, along with the HST in your fees.)

If the expense is incurred as agent

An expense that is 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 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.


This is a tricky area, and many businesses and 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 be, 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.

Last modified on June 4, 2024 12:00 am
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