Canada Revenue Agency
www.cra.gc.ca
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Deposits and conditional sales
Deposits
You do not collect the GST/HST when a customer gives you a deposit towards a taxable purchase. Collect the GST/HST on the deposit when you apply it to the purchase price.
If the customer does not make the purchase and loses the deposit, the forfeited deposit is subject to the GST/HST. If the customer is a GST/HST registrant, the customer can claim an input tax credit (ITC) for the GST/HST paid on the forfeited deposit. You calculate the GST/HST on forfeited deposits as follows:
- GST is equal to 5/105 of the forfeited deposit amount; or
- HST is equal to 12/112 in BC, 15/115 in Nova Scotia, and 13/113 in the remaining partcipating provinces, of the forfeited deposit.
Example
A customer gives you a deposit of $50 towards the purchase of an item that is taxable at 5% GST and forfeits the deposit. The GST collected is equal to 5/105 of the forfeited deposit. AS a result, you have to include GST of $2.38 ($50 × 5 ÷ 105) in your net tax calculation. If the customer is a GST/HST registrant, the customer can claim an ITC for the amount of $2.38.
Exception
We do not apply these rules to deposits for returnable containers. For more information, see Returnable beverage containers.
Conditional and instalment sales
A conditional sale takes place when you transfer possession of goods to a customer. The ownership passes only after the sale meets certain conditions, such as full payment of the purchase price.
In an instalment sale, the ownership passes immediately but the customer pays the purchase price in instalments. You transfer title or ownership and possession of the goods at the time the agreement is entered into, and the customer agrees to make payments over a period of time.
In both cases, you include the GST/HST on the entire amount in your net tax calculation for the reporting period that includes the last day of the month following the month during which you transferred possession or ownership of the goods (whichever is earlier). If you issue an invoice before this time, the customer pays the GST/HST on the full invoiced amount and you have to include the tax in your net tax for the reporting period during which you issued the invoice.
