On June 10, 2020, in Greenfield Mining Services Inc. v.Quebec Revenue Agency, the Court of Quebec (the Court), per the Honourable Jo Ann Zaor, ruled that the plaintiff, Greenfield Mining Services Inc. (Greenfield), was entitled to a deduction under section 444 of the Quebec Sales Tax Act (QSTA) following the write-off of a bad debt in its books of account.

With respect to GST and QST, a supplier who, in its books of account, writes off all or part of the consideration and tax payable in respect of a taxable supply may generally claim a deduction in calculating its net tax in respect of the debt so written off, provided certain legal conditions are met.

Since the concept of "bad debt" (also known as "uncollectible account") is not defined in the legislation, one must normally rely on the criteria developed by the courts. In this case, the Court took the opportunity to clarify the tests applicable when analyzing the uncollectibility of a debt under the QSTA and confirmed that a taxpayer is not bound to exhaust all possible and imaginable recourses for recovery to demonstrate real and reasonable efforts to collect its debt.

In the alternative, the Court also concluded that the taxpayer had no obligation to issue a credit note, despite "[translation] the importance of the credit note in the administrative operations of the [Quebec Revenue Agency]".


Greenfield operates a consulting and construction services company related to the mining industry. In 2010, Canadian Royalties Inc. (CRI), a company operating in this field, sought Greenfield's services for a mining project in Nunavut. Within two years, the value of the services billed to CRI by Greenfield amounted to approximately $17 million (of which $2 million were in fact paid by CRI). 

In 2012, following several unsuccessful payment reminders, Greenfield attempted to recover the amounts billed that remained unpaid. In addition to demands for payment, Greenfield undertook, among other things, multiple arbitration proceedings, a motion for homologation and the publication of a notice of legal hypothec. In August 2015, after paying more than $1.4 million in legal fees in an attempt to recover the amounts owed, Greenfield and CRI finally settled their dispute out of court and agreed to a reduced total amount of $7 million. Following this agreement, Greenfield wrote off the entire $15 million debt in its books of account (despite the agreement that provided for a $7 million "partial" payment). However, Greenfield also noted the overpaid and uncollected taxes from CRI, but only on the amount in excess of the $7 million to be paid by CRI. Greenfield then claimed a corresponding net tax deduction for GST and QST that took into account the taxes that would never be collected from CRI on that amount in excess of $7 million.

However, the Quebec Revenue Agency (QRA) denied the deduction claimed by Greenfield on the grounds that Greenfield had not demonstrated that it had taken all reasonable steps to collect its debt and that collection proceedings were in fact still ongoing during the period in question. The QRA added that the possibility for Greenfield to recover part of its debt under the agreement on a mediation process was irreconcilable with the notion of "bad debt" and with the deduction provided for in section 444 QSTA.

In addition, the QRA contended that Greenfield should have issued a credit note to CRI to benefit from the deduction claimed.

Questions at issue

The issues considered by the Court are:

  • Is Greenfield entitled to a net tax deduction of $737,131.87 for bad debt?
  • Alternatively, did Greenfield give CRI a credit note entitling it to a net tax deduction of $737,131.87?


Debt uncollectibility

The Court first conceded that "[translation] [t]he determination of a bad debt is a factual matter that involves the analysis of several factors.". In this regard, the Court then referred to the tests developed in Quebec in St-Laurent v. Sous-ministre du Revenu du Québec[1] as well as in Rich v. Canada at the federal level. In light of these cases, the various factors can be summarized as follows:

  • Was there a genuine attempt by the taxpayer to recover its debt?
  • If collection is merely doubtful, a debt is not a bad debt.
  • In the case of a corporation, if the corporation has ceased to carry on business and no longer has any assets, the debt will have generally become bad.
  • Other factors such as (i) the history and age of the debt, (ii) the financial position of the debtor, as well as changes in the debtor's sales, cash and other current assets, accounts payable and other current liabilities, (iii) general economic conditions among debtors in the same industry, and (iv) the taxpayer's previous experience with debt write-offs, are also relevant to the analysis.

In light of these criteria, the Court concluded that Greenfield had met its burden of proof. The Court also specified that a genuine attempt to recover a debt does not impose a duty to exhaust all possible and imaginable remedies. Hence, the multiple steps and substantial legal costs incurred by Greenfield demonstrated real and genuine efforts to recover its debt in full.

Moreover, it was demonstrated during testimony that CRI had "no money" and that it was "almost bankrupt". As a result, Greenfield could not reasonably hope to recover more than the $7 million agreed to in the settlement agreement.

Furthermore, pursuant to the measure provided for in section 444 QSTA, the entry in Greenfield's books of account of the net tax amount of $737,131.87 to be recovered was in fact equivalent to the portion of the claim unpaid by CRI, i.e. the consideration exceeding $7 million and not the total amount of $15 million as claimed by the QRA. For these reasons, the Court allowed the appeal and vacated the assessment.

The credit note

The Court concluded its analysis by stating that it was no longer relevant to consider the issue of the credit note that could have been given to CRI to reflect the reduction provided for in the settlement agreement. Although the Court agreed that the issuance of such a note could facilitate the task of tax authorities from an administrative standpoint, since it would leave "[translation] a trace in CRI's books" (paragraph 88), Greenfield had no legal obligation to issue such a note in order to avail itself of the deduction provided for in section 444 QSTA. 

When a taxpayer's debt cannot be considered uncollectible based on the tests developed by case law, the taxpayer still has the option of reducing the consideration of the supply under the rules set out in section 448 QSTA and issuing a credit note to the debtor. Unlike the mechanism related to the write-off of a bad debt, the credit note is equivalent to a voluntary reduction of the consideration initially charged to the debtor and extinguishes all or part of the unpaid debt. However, since the tests related to the issuance of a credit note are much more flexible, many taxpayers still prefer this option in order to avoid a potential confrontation with tax authorities. In this case, by endorsing the settlement agreement, Greenfield had already agreed to reduce part of its debt. In practice, it would therefore have been wise for Greenfield to immediately issue a credit note, which would have avoided costly and unnecessary litigation.

Moreover, contrary to what the QRA claims, the issue of potential double repayment to the detriment of tax authorities appears to be a false problem. In fact, the QRA can always avail itself of the powers conferred on it by section 25 of the Tax Administration Act[2] to assess a recipient directly where the recipient has claimed an input tax refund in respect of a taxable supply that it has not paid to the supplier and said supplier is entitled to a tax deduction for bad debt. This option is also available for GST under paragraph 296(1)(b) of the Excise Tax Act[3]. Thus, even if, without the issuance of a credit note, the "[translation] Court cannot order CRI to remit the amounts overclaimed as inputs" (paragraph 89), the QRA still had the option to assess CRI directly for the amounts overclaimed.

Key takeaways

  • A taxpayer is not required to exhaust all possible remedies to prove that there was a genuine attempt on its part to collect the debt.
  • The tax deduction mechanism for bad debts does not require the issuance of a credit note.

To the extent that the bad debt deduction is uncertain, the taxpayer could instead consider reducing the consideration for the supply charged to the debtor and issuing a corresponding credit note to the debtor. This option will likely have the advantage of avoiding potential conflicts with tax authorities.


1. [1986] R.D.F.Q. 89 (C.P.).

2. Revenu Québec – Lettre d'interprétation, 99-0100802 – Cotisation de la taxe payable et proposition concordataire.

3. GST/HST Policy Statement P-112R.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.