Tax Discounters

GST/HST memorandum 17-10
June 2026

This version replaces the one dated May 1999. 

Except as otherwise noted, all statutory references in this publication are to the provisions of the Excise Tax Act (ETA). The information in this publication does not replace the law found in the ETA and its regulations. Although correct at the time of issue, this publication may not have been updated to reflect subsequent legislative changes.

If this information does not completely address your particular situation, you may wish to refer to the ETA or relevant regulation, or call GST/HST Rulings at 1‑800‑959‑8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1-4, Requesting a GST/HST Ruling or Interpretation, explains how to obtain a ruling or an interpretation.

If you are located in Quebec and wish to request a ruling related to the GST/HST, please call Revenu Québec at 1‑800‑567‑4692. You may also visit the Revenu Québec website at revenuquebec.ca to obtain general information.

For listed financial institutions that are selected listed financial institutions (SLFIs) for GST/HST or Quebec sales tax (QST) purposes or both, whether or not they are located in Quebec, the CRA administers the GST/HST and the QST. If you wish to make a technical GST/HST or QST enquiry related to SLFIs, please call 1‑855‑666‑5166.

GST/HST rates

Reference in this publication is made to supplies that are subject to the GST or the HST. The GST/HST rates are those that were in effect at the time of publishing. For the list of all applicable GST/HST rates (current and historic), go to GST/HST calculator (and rates).

If you are uncertain as to whether a supply is made in a participating province, refer to GST/HST Memorandum 3-3-2, Place of Supply in a Province – Overview.

Table of Contents

• Overview
• Listed financial institution
• Tax discounting services
  • Tax discounting and the Excise Tax Act
• Registration
• Input tax credits
• Adjustments

Overview

1. A tax discounter is a registered EFILER that prepares income tax returns and provides their clients with an immediate discounted tax refund before filing the returns. Tax discounters keep part of the expected refund as a fee and pay the rest immediately to their clients.

Listed financial institution

2. Generally, a tax discounter is a person described in subparagraph 149(1)(a)(x) as a person providing the services referred to in section 158. Section 158 provides rules for the treatment of services to which the Tax Rebate Discounting Act (TRDA) applies. To qualify as a tax discounter, a person must meet the definition of discounter under the TRDA. As such, a person that provides tax discounting services by means of discounting income tax refunds and that is considered to be a discounter for purposes of the TRDA is a listed financial institution for GST/HST purposes.

3. The Canada Revenue Agency (CRA) administers the TRDA, which regulates the practice of tax discounting. Any person that is a registered EFILER and wants to provide discounting services to members of the public or their own clientele can apply. For detailed information on how to become a tax discounter, refer to Information for discounters.

4. A tax discounter that operates in a participating province may be considered to be a selected listed financial institution (SLFI) in respect of a taxation year of the discounter if it has a permanent establishment in a participating province and a permanent establishment in any other province, at any time in the taxation year. For detailed information on determining whether a listed financial institution is an SLFI, refer to GST/HST Memorandum 17-6-1, Definition of Selected Listed Financial Institution.

5. Determining whether a listed financial institution is an SLFI is necessary because SLFIs are subject to a particular treatment under various provisions of the ETA. For example, an SLFI must generally use the special attribution method (SAM) formula under subsection 225.2(2) to calculate its liability for the provincial part of the HST for each participating province. For more information on the rules that apply to SLFIs, refer to Guide RC4050, GST/HST Information for Selected Listed Financial Institutions.

Tax discounting services

6. The TRDA requires that a discounter (as defined under the TRDA) pay the client, at the time the discounting transaction takes place, the minimum consideration in relation to a refund of tax. The minimum consideration is defined in the TRDA to mean:

• (a) where the refund of tax is equal to or less than $300, 85% of the estimated refund
• (b) where the refund of tax is greater than $300, $255 plus 95% of the amount by which the refund of tax is greater than $300

7. Under the TRDA, the discount (the consideration paid or provided by a discounter for the acquisition of a right to a refund of tax from a client) includes any fees the discounter, or another person, may charge for preparing the client's income tax return or for any other service related to the discounting transaction.

Tax discounting and the Excise Tax Act

8. Under the ETA, there are special rules for the application of the GST/HST to income tax discounting services to which the TRDA applies.

9. Section 158 provides where a discounter (as defined in the TRDA) pays an amount to a person to acquire from the person a right to a refund of tax (within the meaning of the TRDA), notwithstanding section 139, the discounter is deemed to have made two supplies:

• (a) a taxable supply of a service for consideration equal to the lesser of:
  • (i) ⅔ of the amount, if any, by which the amount of the refund exceeds the amount paid by the discounter to the person to acquire the right
  • (ii) $30
• (b) a separate supply of a financial service for consideration equal to the amount by which the amount of the refund exceeds the total of the amount paid by the discounter to the person to acquire the right and the amount determined under paragraph (a)

10. For GST/HST purposes, tax discounters are deemed to have made two separate supplies. The first supply, as described in paragraph 158(a), which involves a service of preparing the client's income tax return is a taxable supply subject to the GST/HST (other than a zero-rated supply). The second supply, as described in paragraph 158(b), which involves the payment of the discounted income tax refund to the client (a financial service) is an exempt supply.

Registration

11. A tax discounter that makes a taxable supply in Canada in the course of a commercial activity in Canada is required, under subsection 240(1), to register for GST/HST purposes unless the tax discounter is a small supplier. For more information on small suppliers, refer to GST/HST Memorandum 2-2, Small suppliers.

12. Under paragraph 240(3)(c), a listed financial institution, such as a tax discounter, that is resident in Canada may apply to be registered for GST/HST purposes even if it is not making any taxable supplies.

13. For more information on GST/HST registration for listed financial institutions, refer to GST/HST Memorandum 17-6-2, GST/HST Registration and Reporting Requirements for Listed Financial Institutions, Including Selected Listed Financial Institutions.

14. A financial institution, including a tax discounter, that is a registrant and has annual income over $2 million is generally required to file Form GST111, Financial Institution GST/HST Annual Information Return, in addition to its regular GST/HST return. For more information, refer to Guide RC4419, Financial Institution GST/HST Annual Information Return.

15. A tax discounter is also required to be a registered EFILER and must comply with all provisions of the TRDA. For the most current information of the CRA's procedures and policies for tax discounters under the TRDA, go to Information for discounters.

Input tax credits

16. Generally, GST/HST registrants are eligible to claim an input tax credit (ITC) for the GST/HST paid or payable on property or a service to the extent that it was acquired, imported or brought into a participating province for consumption, use or supply in the course of the registrant’s commercial activities, that is, for the purpose of making taxable supplies for consideration. Registrants making exempt supplies of financial services, such as tax discounters, are generally not eligible to claim an ITC for the GST/HST paid or payable on property or a service to the extent that the property or service was acquired, imported or brought into a participating province to make their exempt supplies of financial services. Where property or a service is for consumption, use or supply partly to make taxable supplies for consideration in the course of a person’s commercial activities and partly for other purposes, such as making exempt supplies of financial services, the person must allocate the GST/HST paid or payable on the property or service between these activities.

17. Financial institutions are also subject to section 141.02, which provides for special input tax credit allocation methods which are applicable to financial institutions. Further information on this may be found in GST/HST Memorandum 17-12, Input Tax Credit Allocation Methods for Financial Institutions for Purposes of Section 141.02.

Adjustments

18. At the time of discounting, the total discount on the income tax refund is calculated using the client's expected income tax refund. Therefore, a tax discounter has an account receivable that will be outstanding until the client's actual income tax refund is received. If the actual income tax refund received is less than the amount expected, the tax discounter may be required to adjust the amount of the total discount and the amount of the GST/HST that was collected from its client. For more information, go to Information for discounters.

19. Where the tax discounter has charged and collected from the client an amount as or on account of tax in excess of the amount that should have been collected, the tax discounter may refund or credit the excess amount of tax collected under section 232. For more information on adjustments of the GST/HST, refer to GST/HST Memorandum 12-2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act.

20. Where a tax discounter receives less than the expected income tax refund, and, if the amount (the difference between the expected income tax refund and the actual income tax refund) is uncollectible, the tax discounter may, under Generally Accepted Accounting Principles, write off the outstanding amount as a bad debt. Subsection 231(1) provides for the recovery of the GST/HST component of bad debts. In general, a supplier may claim a deduction from net tax for a bad debt where all of the following conditions are met:

• The supplier made a taxable supply (other than a zero-rated supply) for consideration to a recipient with whom it was dealing at arm's length
• It is established that all or part of the total of the consideration and tax payable in respect of the supply has become a bad debt and the supplier writes off the bad debt in its books and records
• The supplier included the tax collectible in respect of the supply in determining its net tax reported in the return for the reporting period in which the tax became collectable and remitted all net tax remittable, if any, as reported in that return
• The supplier claims the deduction in a return filed within four years after the due date of the return for the reporting period in which the supplier has written off the bad debt in its books of account

21. Tax discounters are not entitled to a deduction for bad debt write offs under subsection 231(1) when the client's actual income tax refund is equal to or greater than $300. That is because under paragraph 158(a), a discounted income tax refund of $300 or more results in the maximum charge of $30 for the taxable supply.

22. Where a bad debt is in respect of the tax payable calculated under section 158, tax discounters that are eligible for a deduction to the net tax under subsection 231(1) will calculate the deduction using the following formula:

A × B ÷ C

where:

A    is the tax in respect of the expected income tax refund

B    is equal to the value of C less the value of the actual income tax refund

C    where:

• the expected income tax refund was $300 or more: $300
• the expected income tax refund was less than $300: the value of the expected income tax refund

Further information