Words and Phrases - "down payment"

a
88
b
44
c
79
d
52
e
38
f
31
g
19
h
14
i
74
j
2
k
2
l
32
m
56
n
25
o
38
p
81
q
3
r
76
s
90
t
47
u
16
v
9
w
23
y
2

Tendances et Concepts Inc. c. La Reine, 2011 TCC 141 (Informal Procedure)

Summary Under
Tax Topics - Excise Tax Act - Section 168 - Subsection 168(9)
down payment not a deposit

The registrant was in the business of manufacturing kitchen and bathroom furniture. Its usual business terms required customers to pay 30% up front, 60% on completion and 10% on delivery. The registrant contended that the 30% payment was a deposit, and therefore exempt from GST collection.

Hogan J. reviewed at length the distinction between a deposit and a down payment in common law, and the related distinction between an arrhes and an accompte in Quebec civil law, and concluded (at paras. 45-46):

In my view, a "deposit" or "arrhes," within the meaning of the Act, is:

  • security for the performance of the contract;
  • retained by the vendor in the case of default by the purchaser, contrary to a down payment;
  • refundable or not;
  • subsequently applied as a reduction of the sale price;
  • an amount on request prior to entering the contract;
  • is akin to a means of withdrawal;
  • is akin to a penalty clause or prepaid liquidated damages; and
  • a set, invariable, minimum amount.

In order to determine whether an amount is a "deposit" or "arrhes" within the meaning of the Act, the following questions must be posed:

  • Does the contract specify the nature of the first payment?
  • Is the amount intended to secure performance of an obligation?
  • Is the amount paid prior to or after the signing of the contract?
  • Does a penalty clause already exist?
  • Has the tax been calculated on the amount requested?
  • Does it represent a relatively small or substantial amount compared to the total value of the contract?
  • Have the parties set any terms respecting exercising their right of withdrawal?

Hogan J. found that the 30% was a down payment. The registrant's contracts had a separate penalty clause for early termination, which were to vary based on the costs the registrant incurred before the termination, and did not stipulate that on breach the deposit represented liquidated damages. Moreover, the registrant collected only 30% of the GST-exclusive contract price, whereas a deposit when forfeited would have been required by s. 182 to include the GST collectible on that amount.

Words and Phrases
down payment deposit