Taxable supplies - Special cases
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- Coin-operated machines
- Deposits and conditional sales
- Commercial leases
- Insurance claims
- Barter transactions and barter-exchange networks
- Early-payment discounts and late-payment surcharges
- Sale-leaseback arrangements
- Tips and gratuities
- Volume discounts
- Warranty reimbursements
Generally, any goods or services you sell through vending machines or coin-operated machines are subject to the GST/HST. This includes basic groceries such as milk and fruit, which are usually zero-rated.
As the price of these goods and services includes the GST/HST, we consider you to have collected the GST/HST when you remove the money from the vending or coin-operated machine.
You collect $100 from your coin-operated machine in Ontario. Multiply that amount by 5/105 to determine the amount of GST collected, or 13/113 to determine the amount of HST.
($100 × 5) ÷ 105 = $500 ÷ 105 = $4.76 GST
($100 x 13) ÷ 113 = $1,300 ÷ 113 = $11.50 HST
GST/HST is equal to zero for revenues from coin-operated machines that are designed to accept only a single coin of 25¢ or less as the total amount payable for the good or service.
For example, if you sell a lollipop in a vending machine for 25¢, and the vending machine only accepts one 25¢ coin, the GST/HST is equal to zero.
This rule does not apply to machines that accept:
- $1 or $2 coins; and
- more than one coin for the amount payable for the good or service.
Coin-operated washers and dryers in common areas of residential buildings are exempt from GST/HST.
Deposits and conditional sales
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, 14/114 in Prince Edward Island, 15/115 in Nova Scotia, and 13/113 in the remaining partcipating provinces, of the forfeited deposit.
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.
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.
Generally, commercial leases from a landlord who is registered for the GST/HST are taxable.
Property taxes paid by a tenant are to be treated as part of the payment to the landlord for the rental of the real property, even if the tenant pays the taxes directly to the municipality. Therefore, the amount of property taxes payable by a tenant is considered to be part of the rent and is subject to GST/HST in the same way as the amount of rent payable by the tenant. This will be the case whether or not the rental agreement states that the payment of property taxes by the tenant is to be considered as "rent" or "additional rent"
However, if a tenant is directly liable to the municipality for the payment of property taxes, this amount is not subject to GST/HST.
Generally, when you receive benefits from an insurance company under the terms of an insurance policy, the insurance company is making an exempt supply of a financial service. There are two kinds of insurance claims:
- life and health; and
- property and casualty.
Under life and health insurance contracts, the settlement of a claim is usually limited to payment of financial benefits. These payments are financial services and are supplied exempt from GST/HST.
Under property and casualty insurance contracts, the insurer agrees to settle a claim for loss or damage to property either by:
- a cash settlement with the insured;
- paying the cost of repairs to the damaged property; or
- paying the cost of replacing the damaged property.
A cash settlement is a financial service and is supplied GST/HST exempt.
There are two ways an insurer can settle a loss related to damaged property:
- the insurer repairs or replaces the damaged property; or
- the insurer compensates the insured for the cost of repairing or replacing the damaged property.
The insurer repairs or replaces the damaged property
The insurer purchases repair services or replacement property directly. The insurer would pay GST/HST only if the repair services or replacement property is taxable. The insurer is not entitled to claim an input tax credit (ITC) as the insurer is not acquiring the property or service for consumption, use, or supply in his/her commercial activity.
The insurer compensates the insured for the cost of repairing or replacing the damaged property
You, as the insured, acquire the repair services or replacement property directly, and are the recipient of the services or property. If you are a registrant, you may be eligible to claim an ITC. If you are a public service body, you may be eligible to claim a rebate. In this situation, it may be appropriate for the insurer to use the net-of-GST/HST method for settling the property and casualty insurance claim.
The net-of-GST/HST method ensures that an insurer is required to make payment for an insurance claim only to the extent of the actual loss suffered by the insured in accordance with the terms of the insurance policy. The amount paid by an insurer to you will be reduced by the amount that you are eligible to claim as an ITC or rebate related to the tax part of the repair or replacement expense.
You are a GST/HST registrant who uses a car exclusively in the course of your commercial activities. You have an accident. You arrange to have the repairs done at the dealership for $5,000 plus $250 GST. Under the car insurance policy, there is a $500 deductible. You make a cheque payable to the dealership and claim $250 as an ITC. You forward a copy of the invoice to your insurer and ask for compensation less the $250 tax part. The insurer pays you the following:
Where an insured person is not eligible to claim an ITC or rebate, the amount paid by the insurer to the insured may include the GST/HST charged that is related to the repair or replacement expense.
For more information on insurance-related subjects or on insurance claims, see GST/HST Memoranda Series Chapter 17-9, Insurance Agents and Brokers and Chapter 17-16, GST/HST Treatment of Insurance Claims.
Barter transactions and barter-exchange networks
A barter transaction takes place when any two persons (suppliers) agree to an exchange of goods or services without the exchange of money. Suppliers calculate the value of the goods or services at the fair market value at the time of the transaction.
Since a barter transaction is two supplies (one from each party) with two suppliers and two recipients, a supply could be exempt, taxable, or zero-rated. For that reason, each supplier/recipient must deal with the transactions from their own point of view to find out whether they have to charge, collect, or pay GST/HST on the supply, and whether any input tax credit is available in connection with any GST/HST payable on the supply.
You exchange a gas barbecue for a lawnmower with your neighbour. No money is exchanged. You are not registered for the GST/HST and neither is your neighbour. There is no GST/HST implication on this transaction.
A barter-exchange network is a group of persons who have agreed in writing to accept credits (barter units) on account for the group members in exchange for property or services traded among members.
The accounts are maintained by an "administrator". The administrator is responsible for administering, maintaining, or operating a system of members' accounts to which barter units may be credited. When supplied by a GST/HST registrant, tax applies on the exchange value of the barter unit accepted as payment for the goods and services provided for the units.
The administrator of a barter-exchange network may apply to have the network designated for GST/HST purposes. Members of a designated barter-exchange network do not have to pay tax on barter units accepted in exchange for their supplies of goods or services. However, if registrants, they would continue to charge tax on their taxable supplies of goods and services provided for the barter units.
How to apply for network designation
The administrator of a barter exchange network must apply to the Canada Revenue Agency to have the network designated. Once designated, it relieves the members of the network from having to pay tax on barter units accepted in exchange for their supplies of goods or services.
A letter applying for designation is required, signed by the administrator (or an authorized individual), and containing the following information:
- the name of the barter exchange network;
- the name, address, telephone number, trading name, and Business Number of the administrator of the barter exchange network;
- the effective date requested;
- a copy of the standard membership agreement of the barter exchange network describing the responsibilities of the members and the administrator;
- a statement from the applicant stating that it meets the definition of "administrator" of a barter exchange network and
- a statement from the applicant that certifies that the information given in the application and any document attached is true, correct, and complete, and signed by the administrator or an individual authorized to sign on behalf of the administrator.
Administrators outside the province of Quebec, send your letter to:
Director, Public Service Bodies and Governments, Excise and GST/HST Rulings Directorate
Policy and Legislation Branch,
Canada Revenue Agency
14th Floor, Place de Ville, Tower A, 320 Queen Street
Ottawa Ontario K1A 0L5
Administrators in the province of Quebec send your letter to:
Directeur, Direction des lois sur les taxes, le recouvrement et l'administration
Ministère du revenu du Québec,
3800, rue de Marly
Sainte-Foy (Québec) G1X 4A5
Early-payment discounts and late-payment surcharges
If you offer an early-payment discount on credit sales, you have to charge GST/HST on the full invoice amount even if your customer takes the discount.
You operate a business in Manitoba and the invoice shows the price of goods as $100 plus $5 GST. The credit terms of the invoice give the customer a 2% discount if the customer pays within 10 days. GST is $5, even if your customer takes the discount. The customer pays $103 [$100 plus $5 GST minus $2 (2% of $100) early payment discount].
If you charge late-payment surcharges, you do not charge GST/HST on the surcharge. GST/HST is payable only on the original invoiced amount.
If you charge $5 for the late payment on goods invoiced at $100, GST does not apply to the late charge. Therefore, GST is still $5 and the customer pays $110 ($100 plus $5 GST plus $5 late charge).
When you invoice an amount that is already net of the early payment discount, charge GST/HST on the invoiced amount.
You send a customer an invoice with instructions to pay $108 if payment is made by March 23, or to pay $118 if payment is made after March 23. You charge GST/HST on the reduced invoiced amount of $108, even if the customer makes the payment after the March 23 due date.
When you purchase property from a person who does not have to collect tax on the sale, and you immediately lease the property back to that person, the amount of GST/HST calculated on the lease payment is determined by deducting the amount paid or credited for the sale from the lease payments. The total purchase credit is usually spread evenly over the number of lease payments.
When there is no change in the number of lease payments, you determine the purchase credit for each lease payment at the beginning of the lease by dividing the sale price of the property by the number of lease payments. The maximum credit you can deduct from any one lease payment is the amount necessary to bring that payment to zero.
When there is a renewal, variation, or early termination in a lease that changes the number of lease payments, or when the lease is assigned to a new lessor but the lessee and the property remain the same, you recalculate the amount that you may credit against each lease payment. When a lessee exercises an option to purchase the property, you can deduct any unused purchase credits from that purchase price up to the amount of the purchase price.
The owner/lessee sells property to the lessor for $100,000 who leases it back to him over a 100 month period for a rent of $1,200 per month. The purchase credit would be equal to $1,000 ($100,000 divided 100) and tax on each lease payment would be calculated on $200 ($1,200 - $1,000).
Tips and gratuities
Tips or service charges are not usually added to a bill. In general, consumers tip a percentage of the amount of a bill to service providers such as to waiters, waitresses, barbers, hairdressers, and taxi drivers. The percentage and whether the tip is calculated on the amount of the bill before or after taxes depends on the practice of the particular consumer.
A tip or gratuity that is freely given by a customer, for example, cash not recorded on a bill, is not subject to the GST/HST. However, if you add a mandatory or a suggested amount to the customer's bill as a service charge, you have to charge GST/HST on that amount.
If you accept used goods in trade for full or partial payment for goods you sell or lease in the course of your business, special rules apply, depending on whether or not the person from whom you are accepting the trade-in has to charge tax on the trade-in.
When the vendor has to charge tax
If the person from whom you accept used goods in trade has to charge GST/HST (for example, if the trade-in is an asset of a registrant's business), two separate transactions occur:
- you purchase the trade-in from your customer; and
- you make a sale or a lease to the same customer.
You have to pay GST/HST on the value of the trade-in, and you have to collect GST/HST on the full price charged for the goods you sell or lease.
ABC is an Alberta GST/HST registrant, and ABC sells new machinery to DEF, also a registrant, for $50,000. ABC accepts old machinery valued at $20,000 as a trade-in. ABC will invoice and collect GST on the full $50,000 selling price. DEF will invoice and collect GST on the trade-in value of $20,000. Both ABC (the vendor) and DEF (the customer) may claim an input tax credit (ITC) for the GST/HST they paid or owe.
When you accept a trade-in, find out if your customer has to collect GST/HST before you close the deal. If so, make sure you meet the invoice requirements, so that you can claim an ITC.
When the vendor does not have to charge tax
A different rule applies for used goods you accept as a trade-in from a person who is not required to charge GST/HST (usually a person who is not required to register for GST/HST). A person may also trade-in a leasehold interest in used goods.
In this case, you generally charge GST/HST on the net amount of the sale or lease, that is, the price of the goods you sell or lease minus the amount you allow for the trade-in. This approach is consistent with the treatment of trade-ins under most provincial sales taxes. For more information on trade-ins, see GST/HST Technical Information Bulletin B-084, Treatment of Used Goods.
In the following example we are using the GST rate of 5%.
John only used his car for personal use. He goes to a registered car dealer in Manitoba to trade in his used car for a new one. The selling price of the new car is $25,000, and the dealer allows $10,000 for his used car. The dealer charges GST on $15,000.
When you offer volume discounts to reduce the sale price, you can reduce the GST/HST payable. If you offer your customers volume discounts (that is, you reduce the price if they buy a certain quantity of goods), the amount of GST/HST you charge depends on whether you offer the discount at the time of the sale or after the sale.
At the time of the sale
If you offer a discount at the time of sale, you collect the GST/HST on the net amount - the sale price less the discount. The following example shows how to treat a volume discount at the time of sale.
123 ABC Street
Edmonton AB T0K 2B2
Sold To: Flint Company
Date: January 6, 2010
Business Number: 123456789
Terms of payment: Net 30 days
After the sale
Some businesses give volume discounts after they make the sale and collect or charge GST/HST. The customer usually earns this type of volume discount over a period of time (for example, over a year) and not on a sale-by-sale basis. In this case, you have to choose whether or not to credit the GST/HST related to the amount of the discount.
If you choose to adjust, refund, or credit GST/HST for the volume discount amount and the customer is a registrant, you have to issue a credit note to the customer to explain the adjustment, which is the discount and the related amount of GST/HST. Alternatively, the customer can issue a debit note to you to outline the adjustment. Treat credit or debit notes for this purpose the same way as you treat credit or debit notes for returned goods.
If you charge or collect GST/HST on a sale and later offer a price reduction or volume discount, you can deduct the amount of GST/HST you adjust, refund, or credit to the customer when you calculate your net tax on your GST/HST return.
You can make this adjustment only if you included the GST/HST charged in your net tax calculation for a previous reporting period. Your customer will have to repay any rebate claimed, or add the amount of the GST/HST adjustment to his or her net tax if an input tax credit (ITC) or rebate was claimed for the amount.
If you choose not to adjust the amount of GST/HST you charged, you do not have to adjust your net tax calculation. This is sometimes done when the customer is a GST/HST registrant and has already claimed an ITC. Any price reduction you make does not include a refund, adjustment, or credit of GST/HST, and you or the customer do not have to issue a credit or debit note for GST/HST purposes or make any adjustment on your GST/HST return.
Warrantors of goods can claim input tax credits (ITCs) for the GST/HST part of reimbursements they make to warranty holders for goods or services such as repairs covered under the terms of a warranty and provided by a third party. For instance, a warrantor may reimburse a warranty holder when the warranty holder pays for repairs due to an emergency or due to the distance from the warrantor's own authorized repair facility.
The ITC you as the warrantor can claim is based on the part of the total cost that you reimburse the warranty holder. Calculate your ITC using the formula:
A × (B ÷ C)
A is the GST/HST payable by the warranty holder for the goods or services;
B is the amount of the reimbursement; and
C is the cost to the warranty holder of the repair.
You must include with the reimbursement a written statement that a portion of the reimbursement represents GST/HST.
Michael, a GST/HST-registered sales person, uses his car to meet clients. His car breaks down, and he calls for emergency roadside assistance, which is covered under warranty. There is no dealer nearby, and the only repair shop within towing distance is an independent garage. The garage tows and repairs the car for a total of $630 ($500 plus $100 for remote service charge, plus $30 GST). Michael sends this bill to the warrantor who agrees to pay the bill except for the remote service charge. There is a $50 deductible plus GST under the warranty. The warrantor reimburses Michael $472.50 calculated as follows:
Using the formula above, the warrantor can claim an ITC of $22.50 calculated as follows:
= $30.00 × ($472.50 ÷ $630.00)
= $30.00 × 0.75
A warranty holder who is registered for GST/HST can claim an ITC or a rebate. If the warranty holder claims an ITC or rebate and is later reimbursed by the warrantor, the warranty holder has to repay the ITC or rebate for the part that he or she was entitled to claim. The warranty holder remits an amount calculated using the following formula:
D × (E ÷ F)
D is the GST/HST reimbursed;
E is the total of ITCs and rebates that the warranty holder was entitled to claim for the goods or services;
F is the GST/HST the warranty holder paid or owes for the goods or services.
If Michael uses his car 80% in commercial activities, he is eligible for an ITC of $24.00 ($30 × 80%) for the car repair charges described in Example 1. If he claimed this ITC and is later reimbursed by the warrantor, Michael has to repay $18.00 by adding this amount to line 103 of his GST/HST return for the reporting period in which he received the reimbursement.
GST to remit
= $22.50 × ($24.00 ÷ $30.00)
= $22.50 × 0.8
Forms and publications
- Guide RC4022, General Information for GST/HST Registrants
- GST/HST Memoranda Series Chapter 19-4-1, Commercial Real Property - Sales and Rentals
- GST/HST Technical Information Bulletin B-084, Treatment of Used Goods
- Financial assistance payments from your employer or to your employee
- Financial assistance payments from your government
- Date modified: