Diane18
Level 4

Do you charge hst when accepting deposits

We are a construction company that takes upfront deposits before we start a job.  So I make up a Sales Receipt for the 25% deposit.  Am I supposed to charge HST on the deposit, or wait until I do up a final invoice and subtract the deposit from the total?

Solved
impossible
Level 6

Taxes

No, GSt is not collected on a deposit or prepayment. If unsure, check the CRA website for guidance.

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impossible
Level 6

Taxes

Generally, sales tax is not charged on an initial deposit or pre-payment. Sales  tax is, however, charged on subsequent Draws.

Diane18
Level 4

Taxes

That's what I thought but wasn't sure.  Thanks
stephanie-szusz
Level 1

Taxes

This is very helpful. I have a client who has a decorating business. She takes a 75% deposit which is higher than most. I feel like the HST should be charged on this? thoughts?
Diane18
Level 4

Taxes

That is a large deposit.  I would make up an invoice with HST and deduct the 75% off the total - not the subtotal.  That's what I would do but I don't know if that's correct or not.
impossible
Level 6

Taxes

That is NOT correct. What you should do is: when the job is completed, create an invoice for the entire project, applying the correct sales Tax Item to the entire invoice. Then, apply the credit created by the  75% Deposit to the gross amount. that will leave you with a balance payable, including GST.
stephanie-szusz
Level 1

Taxes

ok thanks for the information. This all came up when she was working on her HST return. She files quarterly. From what I can gather from your responses, she shouldn't be charging/collecting the HST until the job is complete - and thus filing that HST in the quarter when the job is done, not when she takes the deposit. Is this correct?
Diane18
Level 4

Taxes

To impossible - that makes more sense.  Thank you!
impossible
Level 6

Taxes

when a Deposit is collected, there is no HST. HST is collected when an invoice is issued, regardless of whether the job is complete or not.
Diane18
Level 4

Taxes

I must be doing something wrong then.  I always create an estimate which includes the HST.  When the client puts a 25% deposit down, I create an invoice and it gets deducted from the estimate but an invoice always calculates the HST so I'll have to cancel the HST on the invoices.  Or is there another way of recording a deposit against an estimate?

Kristine Mae
Moderator

Taxes

I'd like to provide how an estimate works, Diane18.

 

An estimate is a non-posting transaction. You create this when you give your customer a quote or proposal for the work you plan to do. After you're done with the work or if you're ready to bill your customer, you'll add the data from the estimate to an invoice.

 

Thus said, you're unable to record a deposit against an estimate. You can record it against the invoice. You shouldn't cancel the HST on the invoices since it won't calculate on the estimates.

 

I've got you articles for your reference: 

If you have further question, please leave a comment below. We'll get back to you as soon as we can. 

 

 

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Diane18
Level 4

Taxes

Hi Kristine - We receive upfront deposits before invoicing.  I have to record the deposit so I open an invoice against the estimate for the amount of the deposit only.  I think what I'll have to do is create an invoice for the total of the estimate, then record the deposit against the invoice.  It looks like I have no need to create estimates. 

Thank you for your input.

j9
Level 1

Taxes

My problem:  We sell rental space and take deposits (sometimes many) before the actual rental date.  Rental charges are subject to HST which is not payable until the final payment.  I do not wish to pay for the tax in advance, as it is not due until the rental date.  What would be the best way to set this up?  I have tried to work through estimates AND through jobs.  In each instance, I create the estimate for the entire job, create an invoice each time and post the deposit to the charge and not the HST.  The FINAL payment clears the balance of the charge plus the HST.  Reporting is a problem as the invoice is not clear for the client AND it is impossible to access the accounts receivable balance owing.  HELP please.

impossible
Level 6

Taxes

In your situation, Estimates don't appear to be practical.

 

This is what I would do:

 

First, add a Note to the Customer Profile indicating the Total Rental amount + Taxes.  Notes are displayed in the Customer Information screen.

 

Next, use the Receive Payment function to receive the Deposit (there can be only 1 deposit) and Pre-payments. Received from: the Customer, From Account: Accounts Receivable. This will create a credit (or multiple credits in the Customer Account. The Payments (Credits) are also displayed in the Customer Info screen.

 

When the Credits are equal to the $ amount calculated in the Notes, create the Customer Invoice for the full amount. Apply the Credits to clear the balance.

 

 

 

 

SWSCYNDE
Level 1

Taxes

My customer's require an invoice to pay a deposit but they do not want to pay the sales tax or better put aren't required to pay the sales tax until the final payment is due.  How would I do this in QB?  Thanks!

gsb06
Level 2

Taxes

So when you apply the deposit do you apply it including taxes? Do you apply it the amount excluding taxes so the total is the amount received in upfront deposit? Or do you apply the deposit with no taxes at all. As the invoices always are excluding or including taxes I am not sure how to apply it and I have a extra balance on upfront deposit when it shouldn’t be thanks

LeithG
Level 7

Taxes

Hi SWSCYNDE

 

From the customer if you create a new Invoice, simply create a deposit line with 'out of scope' chosen for the tax indicator.  The GST should appear to be 0 on that invoice at that point.

gsb06
Level 2

Taxes

So is it always have to be out Of scope? What would happen if I apply The deposit including taxes on its line item as this way reduces the GST that customer has to pay. Thanks
JamesM4
QuickBooks Team

Taxes

Hi gsb06. Knowing the right tax code to use is essential when it comes to recording your transactions. Here's an article which shows you the types of tax codes included in QuickBooks: Common sales tax codes. I'd also recommend reaching out to your accountant for expert advice on which tax code works best for your scenario. If you're not in contact with one, I encourage you to search for one on our website using this link here. I'll leave this question here so other accounting professional members can chime in. Let me know if you have other questions. I'm here to help.

j9
Level 1

Taxes

After many hours and numerous tries, I finally got a satisfactory answer from a quickbooks rep who had accounting background, not just program knowledge.  YEAH.

 
So here is what was done for my event center client:
When a job was booked, I created an invoice for the date of the function, NOT the date of the deposit.  (eg: the event was booked on January 2nd  but not to take place till March15th). I created the invoice dated March 15th for the full price including the HST.  Then I posted the deposits against this invoice.  Because the HST was only due when the contract was completed (March 15), the invoice date took care of it and the deposits were not charged the HST until the end.  
 
LIkewise, if I was a contractor, I would do the same.  The invoice date could be a moving target.  For example, if the completion date (in my case the event date) was extended to March 30th, I would just change the invoice date.  
 
This really did take care of the HST issue.
 
It is also possible to charge and prepay the hst on any deposit, if that makes you more comfortable.
 
Cheers

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gsb06
Level 2

Taxes

Thank you so very much for sharing! In stlll working on it and I feel the same when I talk to reps it is long time and I never get anywhere. So for your deposit you didn’t charge HST and for the invoice you did charge HST just the invoice but the deposit was stlll out of scope? Because that was my issue I used to include HST on the deposit and when we applied it I applied the same amount including HST now that I had to change to deposit not including taxes my HST is so high and it doesn’t match my balance sheet HST

 

Thank you so much for your help.