Do not charge the GST/HST on promotional gifts that you give your customers or that you distribute as a bonus with another item for no additional charge. You can claim an ITC for the GST
Returned goods
If you give customers a refund or credit for all or part of an amount they paid or were charged for goods they return, you can adjust, refund, or credit the customer the GST/HST you first charged or collected on these goods. If you do this, issue a credit note to the customer, or have the customer issue a debit note to you.
Be sure the following information is included on the credit or debit note:
- a statement or other indication that the document is a credit or debit note;
- your business or trading name, or the name of your intermediary, and your business number (BN), or the BN of the intermediary;
- the customer’s name or trading name, or the name of the customer’s authorized agent or representative;
- the date on which the note is issued; and
- one of the following:
- the amount of the adjustment, refund, or credit for tax; or
- a statement that the total amount for which the note is issued includes the adjustment, refund or credit of tax, the tax rate (GST or HST) that applies to each taxable supply for which tax is reduced, and either the total amount and tax reduced for all the supplies to which the same tax rate applies or the total amount and tax reduced for each supply.
You can deduct the amount of the GST/HST adjusted, refunded, or credited in determining your net tax for the reporting period in which you issued the credit note or received the debit note, as long as that amount was previously included in your net tax. In turn, if your customer claimed an ITC, the customer has to add that amount back when calculating its net tax. If your customer claimed a rebate, the customer has to repay that amount.
You have four years from the end of the reporting period during which you reduced the purchase price to make the adjustment, refund, or credit.
If you refund only a certain percentage of the purchase price (for example, 85%) and keep the balance as a restocking charge, you refund only 85% of the GST/HST you first collected. You would issue a credit note, or the customer would issue a debit note, for the amount of the GST/HST you refunded.
If you and the customer are GST/HST registrants, you can choose not to refund or credit the customer the GST/HST that was previously paid. You may wish to forgo the GST/HST refund if you have already sent us the tax and the customer has already claimed an ITC. In this case, you refund the amount without including the GST/HST that the customer first paid. You and your customer do not have to make any adjustments on your GST/HST returns.
HST paid or payable on your purchases to supply these gifts as long as they relate to commercial activities. Where the purpose of the gift is to promote making an exempt supply, you will not be able to claim an ITC to recover the GST/HST paid or payable on any purchases related to that gift.
