GST/HST on Deposits
When GST/HST applies to deposits, prepayments and progress payments, and how to report forfeited deposits.
The short version
- A deposit taken as security (to hold an order, a booking or a job) isn't subject to GST/HST when you receive it. Tax applies when you apply the deposit to the price of the taxable sale.
- A prepayment or progress payment is different: it's part of the price, and GST/HST is generally payable on it when it's paid or invoiced.
- If a customer forfeits a non-refundable deposit on a taxable sale, you're treated as having collected tax included in it: 5/105 of the amount for GST, 13/113 in Ontario, and so on.
- Deposits on returnable beverage containers refundable to consumers carry no GST/HST.
- Calling something a "deposit" on an invoice doesn't settle it. What matters is whether it secures a promise or pays for the sale.
GST/HST on Deposits
Deposits are where good intentions and GST/HST collide. A kitchen company takes 30% up front, a caterer takes a booking deposit, a car dealer takes $1,000 to hold a truck. Some of those amounts are deposits for tax purposes and some are payments, and the GST/HST timing is different for each. Here's how to tell them apart and what to charge.
Deposit or Prepayment?
| Security deposit | Prepayment or progress payment |
|---|---|
| Secures the customer's promise to go ahead | Pays part of the price |
| No GST/HST when received | GST/HST generally due when paid or invoiced |
| Tax applies when applied against the price | Already taxed |
| May be refunded, or forfeited if the customer backs out | Usually not refundable once the work starts |
| Example: $500 to hold a wedding date, credited to the final bill | Example: a contractor's invoice for 30% of the job before materials are ordered |
The test is what the money is for under the agreement, not what the invoice calls it. Contracts that say a payment is "applied to the price on receipt" are prepayments, whatever the label.
When the Deposit Is Applied
When you apply a deposit to the sale, it becomes part of the price, and GST/HST is calculated on the full price at the time it becomes payable. Example: a $1,000 deposit held for a $10,000 taxable sale in Ontario. When the sale closes, you invoice $10,000 plus $1,300 HST, credit the $1,000 deposit, and collect $10,300. The $1,300 goes on that period's return.
Deposits, progress billings or forfeits to sort out?
Describe how you take deposits and bill your jobs. The SmartFile tells you when GST/HST becomes payable on each amount, what to put on the invoices, and how to report forfeited deposits.
Forfeited Deposits
If the customer walks away and you keep a non-refundable deposit on what would have been a taxable sale, you're treated as having made a taxable supply, with the tax already inside the amount you kept:
| Province rate | Tax fraction | Tax in a $1,000 forfeited deposit |
|---|---|---|
| 5% GST | 5/105 | $47.62 |
| 13% HST (Ontario) | 13/113 | $115.04 |
| 14% HST (Nova Scotia) | 14/114 | $122.81 |
| 15% HST (NB, NL, PEI) | 15/115 | $130.43 |
Report it in the period the deposit is forfeited. A registered customer who forfeits the deposit in a business context can claim the same amount as an input tax credit. If the sale would have been zero-rated or exempt, there's no tax on the forfeit.
Common Situations
- Contractors and renovators: an up-front "deposit" to order materials is usually a progress payment; charge GST/HST on it. See GST/HST for contractors and GST/HST on home renovations.
- Event venues and caterers: a refundable booking deposit is a security deposit until applied.
- Car and equipment dealers: a deposit to hold a vehicle is usually a security deposit until the sale.
- Landlords: residential rent and damage deposits are exempt; commercial damage deposits kept for damage are generally not consideration for the lease, but deposits applied to the last month's commercial rent are taxable when applied.
- New homes: deposits paid to a builder are generally applied to the price at closing, when the GST/HST on the home is accounted for; see GST/HST on new homes.
How deposits fit into your return is on net tax calculation, and the invoice rules on how to charge GST/HST. Back to the GST/HST guide.
GST/HST Deposit Questions
Do I charge GST/HST on a deposit?
Not on a deposit taken as security. GST/HST applies when the deposit is applied to the price of a taxable sale. A prepayment or progress payment is part of the price and is generally taxable when paid or invoiced.
Is a forfeited deposit subject to GST/HST?
Yes, if it relates to a taxable sale. The deposit is treated as including tax, calculated with the tax fraction, such as 13/113 in Ontario.
How do I calculate GST/HST on a forfeited deposit?
Multiply the forfeited amount by the tax fraction for the rate that would have applied: 5/105 for GST, 13/113 for 13% HST, 14/114 for 14% and 15/115 for 15%.
Is a contractor’s upfront deposit taxable?
Usually yes, if it is a payment toward the price of the job rather than security. Check how the contract describes it.
Is there GST/HST on bottle deposits?
No. Deposits on returnable beverage containers that are refundable to consumers are not subject to GST/HST.
Sources: CRA, GST Memorandum 300-6-8, Deposits; GST/HST in special cases. Checked October 2026. The memorandum predates HST and the 5% GST rate; we have applied its rules with the current rates and tax fractions. Commercial lease deposits and new home deposits have specific rules summarized here.
Last reviewed October 4, 2026 against CRA and Government of Canada sources. How we check our facts.