Most incorporated IT contractors do not invoice the end client directly. They invoice an agency, the agency invoices the end client, and payment flows back through the agency to the corporation. This arrangement is common in IT staffing, government contracting, and professional services engagements where a placement agency or staffing firm manages the client relationship. The agency invoice flow creates specific obligations around GST/HST charging, invoice format, and how payments received by EFT connect to income recognition in the corporation’s books.
Getting this right matters because the corporation is the supplier in a business-to-business transaction. The rules that apply to invoicing a consumer do not apply here. In the typical agency relationship, the agency is a GST/HST registrant, the supply is taxable, and the invoice must meet the requirements for a supporting document before the agency can claim the input tax credit on the fee. A compliant invoice protects the agency’s ITC claim and confirms the corporation’s remittance obligation.
The Agency Invoice Flow
In a typical IT contractor arrangement through a staffing agency, the flow has three parties:
The end client engages the agency to provide contractor services. The end client has a contract with the agency. The end client does not have a direct contract with the contractor’s corporation.
The agency has a separate contract with the contractor’s corporation. The agency invoices the end client at the agreed client rate and pays the contractor’s corporation at the agreed contractor rate, which is lower by the agency’s margin. The agency does not itemize its margin on the contractor’s invoice; it is a separate commercial arrangement.
The contractor’s corporation invoices the agency at the agreed contractor rate plus applicable GST/HST. The corporation has no direct billing relationship with the end client.
The invoice the corporation issues goes to the agency, not to the end client. The description on that invoice should reflect the services rendered under the contractor agreement with the agency: professional IT services, consulting fees, or the specific service category defined in the contract. It does not need to reference the end client. It must reference the period of service and the agreed rate.
GST/HST Applies to Agency Invoices
The corporation’s services to a Canadian agency are generally a taxable supply of services. Once the corporation is registered or required to register for GST/HST, GST or HST applies to the invoice issued to the agency at the rate for the province where the supply is made. The agency’s GST/HST registration status does not make the service taxable; it matters because a registered agency generally needs proper invoice support to claim an ITC for the tax charged.
For most IT contractor engagements, the province of supply is based on the recipient address the contractor obtains in the ordinary course of business. Under CRA’s current place of supply rules for services, if the supplier obtains one Canadian business address for the recipient, that address generally determines the province. If more than one Canadian address is obtained, the address most closely connected with the supply is used. In a staffing-agency file, that is often the agency’s contracting or billing office, not necessarily the province where the contractor performs the work. An Ontario-based agency engaging a contractor working remotely from British Columbia will generally require Ontario HST on the contractor’s invoice if the Ontario agency address is the relevant recipient address. Confirming the applicable rate with a CPA is the appropriate step when the agency’s location, billing address, and work location point to different provinces.
The agency can claim an ITC for the GST/HST it pays on the contractor’s invoice, provided the invoice meets the documentary requirements for a supporting document. This is the agency’s tax, not the contractor’s concern, but it is the reason the invoice must be compliant. An invoice missing the corporation’s GST/HST registration number puts the agency’s ITC at risk and creates friction in the payment relationship.
What a Compliant Invoice Must Include
The GST/HST invoice requirements vary by transaction amount. For invoices of CAD $500 or more, which is effectively every agency invoice in an IT contracting context, the supporting document must include:
- The supplier’s business or trading name
- The date of the invoice
- The total amount paid or payable
- The amount of GST/HST charged, or a statement that the amount includes GST/HST at the applicable rate
- The tax status of each supply if the invoice includes both taxable and exempt supplies
- The corporation’s GST/HST registration number
- The agency’s name or trading name, or the name of its authorized agent or representative
- A brief description of the services
- The terms of payment
A practical agency invoice should also include a sequential invoice number, the agency’s billing address, the service period, the agreed rate, and the subtotal before tax. Those items make the invoice easier to reconcile even where they are not all part of CRA’s minimum ITC-support table for every invoice.
The registration number is the element most often missing from invoices assembled without reference to these requirements. A registration number that has not yet been issued because the corporation has not registered is a compliance problem, not a formatting one. For most businesses, the CAD $30,000 small supplier threshold is tested over a single calendar quarter or over the previous four or fewer consecutive calendar quarters. If the corporation is no longer a small supplier, registration is mandatory and invoicing without a registration number is not a compliant practice for a registrant.
The invoice date and the period of service should be distinguished. An invoice issued on June 30 for services provided throughout June identifies the service period as the month of June. An invoice that covers a specific engagement milestone should describe it. The description does not need to be exhaustive; it needs to be sufficient to identify what was supplied.
EFT Payment Mechanics and Timing
Most agencies pay incorporated contractors by electronic funds transfer. The EFT arrives in the corporation’s bank account on a scheduled basis, which may be weekly, bi-weekly, or monthly depending on the agency’s payment terms and the contract terms negotiated.
The EFT deposit date and the invoice date are not the same. The invoice date is the date the invoice was issued; the service period shows when the work was supplied. The EFT deposit date is when the cash arrived in the corporate account. These dates determine different obligations:
The GST/HST reporting obligation is usually tied to the invoice date, not the EFT deposit date. CRA states that the GST/HST return for the reporting period that covers the invoice date should include the GST/HST charged, whether or not payment has been received. Contract terms can matter where an amount becomes due before the invoice is issued or payment is received before invoicing, but the practical rule is the same: treating the EFT deposit as the GST/HST trigger understates the liability if invoices issued near the end of a reporting period are not paid until the next one.
Income recognition for corporate tax purposes generally follows accrual accounting. Revenue is recognized when the services are rendered and the right to receive payment is established, not when the payment arrives. A corporation that invoices $10,000 on June 30 and receives the EFT on July 15 has normally earned the revenue in June for accounting and tax purposes, even though the bank account reflects it in July.
For a contractor with consistent billing and short payment terms, the difference between invoice date and EFT deposit date is usually less than thirty days and the practical effect on annual income is modest. Where it matters more is near the fiscal year-end. An invoice issued two days before the corporation’s fiscal year-end, with EFT payment arriving after the year-end, is revenue in the year the invoice was issued. The year-end review should include outstanding receivables for exactly this reason.
Tracking EFT Receipts Against Outstanding Invoices
When an EFT deposit arrives, it should be applied in the accounting software to the specific invoice it settles. This is the accounts receivable application step. An EFT that is deposited to revenue without being matched against an invoice creates a discrepancy: the accounts receivable balance shows the invoice as outstanding while the revenue balance reflects the payment twice.
For most contractor corporations invoicing a single agency, this is a straightforward matching exercise. The EFT amount corresponds directly to the invoice amount including GST/HST, and the bank deposit is matched to the invoice in the accounting software. The GST/HST component is separated from the revenue and posted to the GST/HST payable account when the invoice is issued, not when the EFT arrives.
Partial payments create more complexity. If an agency short-pays an invoice, the partial payment is applied against the invoice and the remaining balance stays in accounts receivable until settled. The GST/HST on the original invoice remains reportable for the invoice period even if full payment has not been received. An uncollected receivable does not reduce the GST/HST remittance obligation for the period in which the invoice was issued unless the receivable is later written off as a bad debt and the bad debt adjustment rules are followed.
Agency Management Fees
Some staffing agreements include a provision for the agency to deduct a management or administrative fee directly from the contractor’s payment. The effect is that the EFT deposit is lower than the invoiced amount by the management fee. Other agreements simply define the contractor rate as the net amount payable by the agency, with the agency margin kept in the separate client-agency contract. The accounting treatment depends on which arrangement the paperwork actually supports.
Where the agency charges the corporation a separate management fee, that fee is a cost to the contractor’s corporation and may support an ITC if the agency is charging GST/HST as a separate taxable supply. Whether the agency provides a proper invoice or credit note for the management fee determines whether the corporation can claim an ITC for the GST/HST charged on that fee. An informal deduction from the EFT without documentation does not support an ITC claim.
If the contract and remittance advice show a separate management fee, the invoice issued by the corporation should reflect the full contracted amount before that fee. The management fee is then the agency’s charge to the corporation for its services, not a reduction in the contractor’s fee to the agency. The corporation’s revenue is the full invoiced amount; the management fee is an expense. Booking the net EFT deposit as revenue without recording the management fee as an expense misrepresents both the revenue and the expense position. If the agreement instead sets only a net contractor rate, do not gross up revenue for an agency margin the corporation was never entitled to receive.
Quebec Perspective
Quebec does not use HST as its provincial sales tax. For Quebec-based incorporated contractors, Revenu Québec generally administers both GST/HST and QST. If the supply is made in Quebec, the invoice charges 5% GST and 9.975% QST. If the GST/HST place-of-supply rules deem the supply to be made in a participating province such as Ontario, the contractor may need to charge that province’s HST instead, and QST generally does not apply unless the supply is also made in Quebec under QST rules.
For a Quebec supply subject to both taxes, the invoice must display both the GST/HST registration number and the QST registration number. The combined rate is 5% GST plus 9.975% QST, totalling 14.975%. The QST is calculated on the value of the supply before GST, not on the GST-inclusive amount.
The place of supply for QST follows a parallel address-based approach for services. Revenu Québec’s guidance treats a service as performed in Quebec where, in the ordinary course of business, the supplier obtains a Quebec address of the purchaser that is the only Canadian home or business address obtained, or the address most closely connected with the service. If the supplier does not obtain a Canadian purchaser address, the service can also be considered performed in Quebec where the Canadian part of the service is performed primarily in Quebec.
The agency can claim input tax refunds (ITRs) for QST charged on the contractor’s invoice where the agency is entitled to recover QST and the invoice includes the corporation’s QST registration number. A Quebec agency that receives an invoice without a QST number cannot properly support the ITR, which creates the same friction as a missing GST/HST registration number.
Common Issues
GST/HST not charged on agency invoices. Some contractors, particularly those newly incorporated or operating without accounting advice, issue invoices to the agency without GST/HST on the assumption that the B2B nature of the transaction means no tax applies. The opposite is true. The B2B nature of the supply is the reason the agency can claim an ITC, but the tax must be charged and remitted in the first place. Invoices issued without GST/HST after the corporation’s registration is effective are non-compliant and may require retroactive adjustments.
No GST/HST registration number on the invoice. A corporation that has registered but has not added its registration number to the invoice template is issuing non-compliant invoices. The agency cannot claim the ITC without the supplier’s registration number. Updating the invoice template is a one-time task that should happen as soon as the registration number is issued.
EFT deposits recorded as revenue rather than accounts receivable settlements. When the bank feed brings in an EFT deposit and it is categorized directly as revenue, the accounts receivable balance from the original invoice remains open. The result is that revenue appears twice: once from the invoice and once from the deposit. Monthly reconciliation catches this because the accounts receivable account will not agree with the outstanding invoices. Matching each EFT deposit to its corresponding invoice is the correct process.
Booking net EFT after a separately documented management fee deduction as revenue. Netting a separate management fee against the EFT deposit and recording only the net amount as revenue understates both revenue and expenses. This affects the corporate income figure, the reported professional fees revenue, and the GST/HST amounts if the management fee included tax that was not reflected in the books.
Invoice date vs EFT date mismatch at year-end. A corporation whose fiscal year-end falls between the invoice date and the EFT payment date has revenue in the year the invoice was issued. If the invoice is not in the books as of year-end because the contractor records transactions only when cash arrives, the year-end income is understated. Accrual-based accounting means the invoice date controls, not the deposit date.
The agency invoice flow is a well-defined process once the mechanics are established: issue a compliant invoice on the agreed billing date, track the receivable until the EFT arrives, apply the EFT to the invoice when it is deposited, and keep the GST/HST balance current as of each invoice date. A monthly close that reconciles the accounts receivable balance against outstanding invoices catches problems before they accumulate. The GST/HST filing guide covers how the running balance connects to the remittance obligation.