The Canada Revenue Agency (CRA) has issued GST/HST Info Sheet GI-197, Out-of-Pocket Expenses, to outline how GST/HST applies when consultants or other suppliers bill their clients for services along with charges for additional expenses incurred while performing those services. It is not unusual for suppliers to invoice customers for the reimbursement of various out-of-pocket expenses, such as copying, office supplies, meals, and parking fees. The info sheet draws a clear distinction between out-of-pocket expenses incurred while acting as agent for a client and those incurred in other situations.
A supplier that is the recipient of a taxable supply giving rise to an out-of-pocket expense not incurred as agent for its client is liable for any GST/HST applicable to that supply. In this situation, any charges by the supplier to its client for the out-of-pocket expenses are viewed as additional consideration for the supply of its services and should be taxed in the same manner. The supplier will generally be entitled to claim an input tax credit (ITC) for GST/HST paid on the out-of-pocket expenses, subject to the usual conditions (i.e., the documentary requirements can be satisfied, and the expenses were incurred in relation to commercial activities).
In addition, where an out-of-pocket expense incurred by a supplier is subject to the 50% meals and entertainment ITC restriction but is rebilled explicitly as meals and entertainment to a client, the restriction no longer applies to the supplier but is passed on to the client.
However, when a supplier acts as agent for its client in incurring an out-of-pocket expense, any charge for reimbursement of the expense is not regarded as additional consideration for the supply and is not subject to GST/HST. In this case, the supplier will not be entitled to claim an ITC for any GST/HST paid on the out-of-pocket expense. Instead, any potential ITC will be available to the client.
The info sheet also includes 12 useful examples of invoices involving various types of out-of-pocket expenses incurred in different situations, with many focusing on scenarios where the supplier is not acting as agent, as well as a list of common examples of out-of-pocket expenses typically not incurred as agent.