Deposits (GST 300-6-8)

Notice to the reader:

Please note that the following GST Memorandum, although correct at the time of issue, has not been updated to reflect any subsequent legislative changes since the date of issue. As a result, some of the technical information this memorandum contains may no longer be valid. Please contact your GST/HST Rulings Centre for assistance.

GST memoranda 300-6-8

Ottawa, January 15, 1991

TAX ON SUPPLIES
TIME OF LIABILITY
DEPOSITS

This memorandum in the "TIME OF LIABILITY" sub-series explains the time of liability for payment of the Goods and Services Tax (GST) when a deposit is made on a supply.

LEGISLATIVE REFERENCES

Excise Tax Act, sections 123, 137 and 182, subsections 168(1) and 168(9).

DEFINITIONS

The following definitions have either been taken from the Excise Tax Act (as amended by Bill C-62) or represent departmental interpretations of terms relevant to the administration of that Act.

"Act" means the Excise Tax Act as amended by Bill C-62;

"consideration" may be money, a thing, a service, forbearance in the exercise of a right or anything else which induces the supplier to make the supply. Where consideration is monetary, the amount of the money will be used to calculate the tax. Where the consideration is non-monetary, the fair market value of the consideration at the time the supply was made will be used to calculate the tax;

"invoice" includes a statement of account, a bill and any other similar record, regardless of its form or characteristics, and a cash register slip or receipt;

"person" means an individual, partnership, corporation, trust or estate, or a body that is a society, union, club, association, commission or other organization of any kind;

"property" means any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money;

"recipient", in respect of a supply, means the person who pays or agrees to pay consideration for the supply or, if no consideration is or is to be paid for the supply, the person to whom the supply is made;

"registrant" means a person who is registered, or who is required to apply to be registered, under sections 240 and 241 of the Excise Tax Act;

"service" means anything other than

(a) property,

(b) money, and

(c) anything that is supplied to an employer by a person who is or agrees to become an officer or employee of the employer in the course of or in relation to the office or employment of that person;

"supply" means, subject to sections 133 and 134 of the Act, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;

"tax" means the Goods and Services Tax payable under Part IX of the Excise Tax Act;

"taxable supply" means a supply that is made in the course of a commercial activity, but does not include an exempt supply.

GENERAL

1. The general timing of liability rule under subsection 168(1) of the Act is that tax is payable by the recipient of a taxable supply on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due. Tax is generally collectible by the supplier at the same time that it is payable by the recipient.

2. Registrants are required to account for any tax collectible, on the return for the reporting period in which the tax became collectible, regardless of whether it was actually collected.

Consideration Paid

3. Consideration is paid when it is received by the supplier.

Consideration Becomes Due

4. Under subsection 152(1) of the Act, consideration, or a part thereof, for a taxable supply, is deemed to become due on the earliest of the following days:

(a) the day that the supplier first issues an invoice in respect of the supply for that consideration or part;

(b) the date of that invoice;

(c) the day when, but for an undue delay, the supplier would have issued an invoice in respect of the supply for that consideration or part; and

(d) the day that the recipient is required to pay that consideration or part pursuant to an agreement in writing.

DEPOSITS

5. A deposit is an amount given by a recipient as security for the performance of an obligation by the recipient. This amount may or may not be refundable.

6. As stipulated in subsection 168(9) of the Act, where a person gives a deposit in respect of a supply (other than an amount in respect of a covering or container governed by section 137), that deposit is not regarded as consideration for the supply unless and until the supplier applies the deposit against the consideration for the supply.

7. The tax will be payable by the recipient at the time the supplier applies the deposit against the consideration for the taxable supply. For example, a deposit is given to a retailer to hold a stereo until the customer decides whether or not to purchase it. If the customer decides to purchase the stereo, tax will be payable on the amount deposited when the deposit is applied against the consideration for the purchase of the stereo.

8. If the deposit amount is refundable and is refunded by the supplier to the recipient, there are no tax consequences.

Forfeiture

9. Some deposits are not refundable. In such cases, if the person making the deposit fails to fulfil the obligation secured by the deposit, the person to whom the deposit was paid will keep the amount deposited. In this situation, the deposit is "forfeited".

10. If a deposit is forfeited to a registrant because of a breach, modification or termination of an agreement to make a taxable (other than zero-rated) supply, then section 182 of the Act deems a taxable supply to have been made by the supplier and liability for the tax to have been incurred at the time of the forfeiture. The supplier is considered to have collected the tax (and is therefore responsible for remitting the tax) at the time of forfeiture. The tax collected is deemed to be equal to 7/107ths of the amount forfeited.

11. For example, a deposit of $50 was forfeited to a registered supplier. The supplier is deemed to have collected tax of $3.27 ($50 x 7/107) on the forfeiture and received $46.73 as consideration.

12. At the time of forfeiture, the person who made the deposit is considered to have paid tax on the forfeiture. As a result, if a registrant, the person is entitled to an input tax credit equal to 7/107ths of the amount forfeited.

13. For example, a registrant forfeits a $50 deposit. The registrant is treated as having paid tax in the amount of $3.27 ($50 x 7/107). An input tax credit for this amount may be claimed.

14. Additional information on input tax credits relating to forfeitures may be found in GST MEMORANDUM 400-3-12, "FORFEITURES".

Returnable Containers

15. Subsection 168(9) does not apply to deposits given for returnable containers which are usual coverings or containers for products. Section 137 of the Act deems that such amounts are part of the price charged for the product and, therefore, have the same tax status as the contents of the container. Special rules apply to deposits on returnable containers for beverages.

16. For additional information on returnable containers, please refer to the GST Technical Information Bulletin entitled "RETURNABLE CONTAINERS".

NOTE: This memorandum is not a legal document. It contains general information and is provided for convenience and guidance in applying the Excise Tax Act and Regulations. If interpretation problems occur, please refer to the legislation or contact the nearest Revenue Canada Excise office.

REFERENCES
OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act as amended by Bill C-62

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

N/A

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.