Deposits and Downpayment

 

You may collect a deposit or downpayment from your customer for your supply of goods or services.

When a deposit forms partial payment for the goods or services supplied, GST has to be charged on the amount of deposit and accounted for in the accounting period in which the deposit is received. This treatment applies even if you are prepared to refund the deposit to your customer if the supply is subsequently cancelled.

You supply textiles to your customer and receive a 20% deposit of the purchase price from your customer when an order is placed. The deposit forms partial payment for the textiles and is 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 textiles. 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 (e.g. 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.

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