tax & accounting services
  • November 7, 2019

When the deposit is used to pay for part of the payment for the goods or services provided, the deposit must be subject to a Goods and Services Tax and is accounted for during the accounting period in which the deposit is received. This method will still apply even if you are going to return the deposit to your customer in the event of a subsequent cancellation.

For example:

You supply stationery to your customer and receive a 20% deposit of the purchase price from the customer when an order is placed. The deposit forms partial payment for the stationery and can be refundable to your customer (e.g. if he cancels the order)

You should charge and account for GST on the deposit as it forms partial payment for the stationery. If you subsequently refund the deposit to your customer, you can adjust the GST previously accounted in your GST return if you maintain the necessary documents (for example, credit note issued to your customer)

*When a deposit is used as a refundable security deposit, GST is not chargeable.  For example, a deposit imposed for the safe return of goods.