Window and door tax: when a deposit becomes income and a rebate becomes taxable

Deposits are income on receipt, and the reserve is what defers them

The Income Tax Act pulls amounts received for goods and services not yet delivered into income in the year received. For a dealer holding deposits on forty jobs at year-end, that is a real tax bill on money that is not yet earned and in some cases still refundable. The relief is the paragraph 20(1)(m) reserve: a deduction for amounts received in respect of goods to be delivered or services to be rendered after year-end, added back to income the following year and re-claimed against whatever backlog remains.

The reserve is only as good as the deposit ledger behind it. We build the year-end claim from a job-by-job list of deposits held against uninstalled contracts, agreed to the CRM and the balance sheet, so the reserve is documented rather than estimated. That same schedule tells us whether the year-end date itself is working for you — a January or February year-end, after the fall install rush and before spring selling, usually leaves the smallest backlog to reserve and the cleanest cut-off. Our note on choosing a fiscal year-end covers the other trade-offs.

Rebates, co-op funds and dealer bonuses are taxed when earned

A volume rebate you qualified for in your fiscal year is income of that year even when the manufacturer settles it in the next quarter. If the tier was met and the amount is determinable at year-end, it goes into income; if a credit is applied to your account in the new year for the old year's purchases, it still belongs to the old year. Recording rebates only when cash or credit arrives shifts income between years and, in a CRA review, looks like unreported revenue in the year the manufacturer's records say you earned it.

Co-op advertising funds follow the spending they reimburse, and dealer trip incentives or product credits are taxable to the corporation at what they are worth. If any of these arrive in US dollars from a US manufacturer, they are converted at the rate on the date they became receivable — the mechanics are in our cross-border guide for dealers.

Warranty reserves are not deductible until the work is done

Every installer knows some percentage of jobs will need a callback. Accounting standards want that provision on the books; the Income Tax Act does not allow a deduction for a contingent reserve. Callback labour, replacement sealed units and service-truck time are deducted in the year they are incurred, so the warranty provision in the financial statements is added back on Schedule 1 and the actual callback costs are tracked separately as they happen. Where a manufacturer reimburses labour on a product warranty, the reimbursement is income when receivable and the labour is a cost when paid.

Vans, tools, showroom and the CCA schedule

A dealer's capital assets fall into a predictable set of classes, and the first-year rules for each have moved several times in recent years. As at the time of writing, enhanced first-year allowances have been reinstated for many purchases made after late 2025, so we confirm the rate in force on the day an asset is acquired rather than assume.

Vehicles are where dealers most often overreach: a truck that is also the family vehicle needs a logbook to support the business percentage, and a standby charge or operating benefit follows the owner if the corporation owns it. Our note on whether the corporation should pay for your car sets out the choices.

HST: deposits, credit notes, import GST and instalments

HST on a deposit is not payable until the deposit is applied to the invoice, unless you issue a tax invoice for the deposit itself — in which case the tax is due in the period you invoiced. Dealers who bill the deposit with HST and then wait months to install are financing the CRA out of their own working capital, so we usually recommend a deposit receipt rather than a tax invoice, with the full HST charged on the final bill. Rebate credit notes from manufacturers that adjust tax reduce your input tax credits in the period received. Where you are the importer of record on US product, the 5% GST paid to the CBSA at the border is a recoverable input tax credit, and the Ontario portion is neither paid at the border nor self-assessed on goods bought for commercial use.

Filing frequency follows revenue — annual up to $1.5 million in taxable sales, quarterly to $6 million, monthly above that — and once corporate tax and HST balances pass their thresholds, instalments start. We calendar all of it so the busy season is not interrupted by a notice. Our tax services page describes the year-round rhythm behind every T2 we file.