How to Handle early-payment discounts and late-payment surcharges with your Customers

If you offer an early-payment discount on credit sales, you have to charge GST/HST on the full invoice amount even if your customer takes the discount.

Example

You operate a business in Manitoba and the invoice shows the price of goods as $100 plus $5 GST. The credit terms of the invoice give the customer a 2% discount if the customer pays within 10 days. GST is $5, even if your customer takes the discount. The customer pays $103 [$100 plus $5 GST minus $2 (2% of $100) early payment discount].

If you charge late-payment surcharges, you do not charge GST/HST on the surcharge. GST/HST is payable only on the original invoiced amount.

Example

If you charge $5 for the late payment on goods invoiced at $100, GST does not apply to the late charge. Therefore, GST is still $5 and the customer pays $110 ($100 plus $5 GST plus $5 late charge).

When you invoice an amount that is already net of the early payment discount, charge GST/HST on the invoiced amount.

Example

You send a customer an invoice with instructions to pay $108 if payment is made by March 23, or to pay $118 if payment is made after March 23. You charge GST/HST on the reduced invoiced amount of $108, even if the customer makes the payment after the March 23 due date.

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