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.
Example: Deposits as partial payment for goods
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).
When you receive the deposit:
Charge and account for GST, since the deposit represents partial payment for the goods
If you refund the deposit:
You may adjust the GST previously accounted for in your GST return, provided you maintain the proper documentation (e.g. credit note issued to your customer)
Example: Refundable deposit collected for leasing a property
You lease a non-residential property to a tenant and collect a rental deposit as security. The lease agreement allows you to offset this deposit against any unpaid rent should the tenant default.
When you collect the deposit:
No GST needs to be accounted for if the deposit is refundable upon completion of the lease term.
When you use the deposit for rent:
GST must be accounted for at the time when you utilise the deposit to offset the unpaid rent.
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.