Seller Pty Ltd provides a volume rebate discount of 10% when Buyer Pty Ltd purch

Question

Seller Pty Ltd provides a volume rebate discount of 10% when Buyer Pty Ltd purchases more than $50 000 worth of product in a calendar month. Buyer Pty Ltd has qualified for this discount ten times in the past twelve months. What are the tax implications of the information given in (a) above? (b) Refer to the information given in (a|) above. As a condition of claiming the volume rebate discount Buyer Pty Ltd is also required to lodge a rebate claim form each month before the end of the month. Buyer Pty Ltd often neglects to lodge the rebate claim form. What are the tax implications of this action?

Explanation / Answer

For volume discounts, how you apply GST/HST to the sale depends on whether you offer the discount at the time you make the sale or after you make the sale.

For a discount offered at the time of sale, you charge GST/HST on the net amount (the sale price minus the discount). So for instance, if a customer bought ten dancing hula lamps that normally cost $100 each and I was offering a 10 percent discount on that item, I would charge the customer GST/HST on the net amount of $900 ($1000 minus the $100 discount).

Volume discounts offered after the sale, such as discounts that customers earn over time, are a bit more complicated because you need to choose whether or not to credit the GST/HST related to the amount of the discount.

If you refund or credit the GST/HST for the volume discount to the customer and he is a GST registrant, (also charges and collects GST/HST), then you have to issue the customer a credit note explaining the adjustment, telling him what the discount is and the related amount of GST/HST.

This can also be worked the other way around, with the customer issuing you a debt note to explain the adjustment. As long as the amount credited or debited was previously included in your net tax, you can deduct the amount of GST/HST adjusted when you are determining your net tax for the period in which you issued the credit note or received the debit note.

You might want to choose not to adjust the amount of the GST/HST you charged if the customer is a GST registrant and has already claimed an Input Tax Credit on the GST/HST he was charged.

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