Complete guide to the domestic reverse charge. Learn which services qualify, how to invoice correctly, and how to account for GST/HST in Boxes 1 and 4.
Mandatory
If Qualified
5%
Standard Rate
Construction Holdback
Often Used
Zero GST/HST
On Invoice
Reverse charge means the customer (contractor) becomes liable for GST/HST instead of the supplier (sub-contractor). The supplier invoices without GST/HST; the customer accounts for the GST/HST to CRA.
Supplier invoices:
Net: CA$1,000 + GST/HST: CA$200 = CA$1,200
Supplier pays CA$200 to CRA
Customer reclaims CA$200
Supplier invoices:
Net: CA$1,000 (no GST/HST shown)
Customer accounts for CA$200 GST/HST
Customer pays CRA directly
End result: Same amount of GST/HST is paid to CRA, but the person responsible changes.
The reverse charge applies to construction services as defined in the GST/HST Notice 706/14. These are services provided in the course of construction business.
If the customer is not a contractor or sub-contractor (e.g., a homeowner commissioning work on their property), reverse charge does NOT apply. Normal GST/HST applies instead.
Services provided through intermediaries (labour-only agencies) may not qualify. Check if the intermediary is acting as principal or agent.
Materials or goods supplied without labour do NOT qualify. Reverse charge only applies when labour or services are provided.
Services outside construction scope (accountancy, legal advice, marketing) do NOT qualify, even if provided to construction companies.
When reverse charge applies, your invoice must clearly show that GST/HST is due from the customer under reverse charge rules.
Service Description
Clearly describe the construction service provided
Net Amount Only
Invoice shows net amount - GST/HST is NOT shown on the invoice
Reverse Charge Statement
Include a statement such:
"Reverse charge – GST/HST will be accounted for by the customer under the domestic reverse charge procedure"
Your Details
Your Business Number (BN) (if registered) and company name
Customer's Details
Customer name, address, and Business Number (BN) (if registered)
Invoice Date and Number
Standard invoice requirements apply
Important: The invoice shows CA$0 GST/HST. The customer must still be told the GST/HST rate (5%) applies, so they know how much GST/HST to account for.
As the customer (contractor), you must account for GST/HST in specific boxes on your GST/HST return.
When you receive an invoice under reverse charge, you must calculate the GST/HST due (at 5%) and account for it on your GST/HST return in both Box 1 (output GST/HST) and Box 4 (input GST/HST reclaim).
Include the GST/HST amount calculated on the reverse charge invoice (invoice amount × 5% ÷ 15%).
Example:
Invoice: CA$1,000 net
GST/HST: CA$200 (5%)
Box 1: Add CA$200
Claim the same GST/HST amount as input tax (cost relief for your business).
Example:
GST/HST from reverse charge: CA$200
Box 4: Claim CA$200
Net Effect: Box 1 and Box 4 both increase by the same amount, netting to zero impact on your GST/HST liability. The process ensures CRA collects GST/HST even though the supplier didn't charge it.
Scenario: You hire a builder for site management. Invoice received: CA$2,400 (no GST/HST shown, marked as reverse charge).
Calculation
Invoice amount: CA$2,400
GST/HST rate: 5%
GST/HST due: CA$400
GST/HST Return
Box 1 (Output): +CA$400
Box 4 (Input): +CA$400
Net: CA$0
Scenario: Sub-contractor provides three invoices: CA$5,000 reverse charge, CA$1,200 normal GST/HST (to homeowner), CA$800 normal GST/HST (plant hire).
Invoice 1
Amount: CA$5,000
Type: Reverse charge
GST/HST: CA$833
Invoice 2
Amount: CA$1,200
Type: Normal GST/HST
GST/HST: CA$240
Invoice 3
Amount: CA$800
Type: Normal GST/HST
GST/HST: CA$160
GST/HST Return: Box 1 (Output): CA$833 | Box 4 (Input): CA$833 + CA$240 + CA$160 = CA$1,233 | Net: -CA$400 (claim)
Scenario: You have an invoice marked "reverse charge" but only the gross amount (CA$3,000). You need to calculate the GST/HST portion.
Using Our Calculator:
Enter: CA$3,000 (gross amount)
Select: 5% GST/HST rate
Result:
Net: CA$2,500
GST/HST: CA$500
Action: Enter CA$500 in both Box 1 and Box 4 of your GST/HST return.
No. Reverse charge is mandatory if the conditions are met. Both the supplier and customer must follow the rules. Non-compliance can result in penalties and interest.
Request a credit note and corrected invoice. Do not pay the GST/HST shown. Keep evidence of the request. Account for the transaction correctly under reverse charge rules.
Only if you are a contractor/principal. A sub-contractor can invoice their own sub-contractor under reverse charge, but only if they themselves meet the contractor definition.
Check CRA Notice 706/14 for the full list. If the service is labour or design-related to construction, and you're both registered contractors, it likely qualifies. When in doubt, ask the supplier or CRA.
The construction holdback rules only applies to services within Canada. Canadian and international services follow different rules. Consult CRA or a tax advisor for overseas transactions.
Use our Reverse GST/HST Calculator or Construction Holdback Calculator to quickly work out GST/HST amounts from gross figures.