Refunds, chargebacks, and platform reimbursements all reduce the number in your bank account, but they are not the same event in your books. Each one has a different cause, a different relationship to your original revenue, a different GST/HST treatment, and a different journal entry. Treating them all as the same transaction produces a set of books that misrepresents gross revenue, understates or overstates tax liabilities, and cannot be reconciled to platform statements.
The distinction matters most at GST/HST filing time and at year-end, when incorrect figures compound into larger problems.
Types of Reversed Transactions
Returns. A customer sends product back and you or the platform refund the purchase price. The sale is reversed. Your inventory may be restocked (if the item is resalable) or written off (if not). The revenue recognized on the original sale must be reversed.
Refunds without a return. The customer keeps the product but receives a partial or full refund — for a damaged item, a significant delay, or a dispute resolved in the buyer’s favour without requiring return shipping. The revenue reversal is the same as a return, but there is no inventory movement.
Chargebacks. The customer disputes the charge with their bank or credit card issuer. The bank reverses the transaction and debits your account. A chargeback is not initiated by you; it is imposed on you. Chargebacks typically also carry a platform or processing fee. The disputed amount is reversed, and you may or may not recover it if you win the dispute.
Platform reimbursements. Amazon and certain other fulfillment platforms compensate sellers when their inventory is lost or damaged inside the fulfillment center. This is not a reversal of a sale — it is compensation for a loss. It is a separate income item, not a credit against cost of goods sold.
GST/HST on Refunds
When you refund a Canadian customer for a taxable supply, you can usually adjust the GST/HST you collected on that sale. The mechanism under section 232 of the Excise Tax Act is a credit note or a debit note. If you issue a credit to the buyer, you issue a credit note. If the buyer issues one to you, it is a debit note from their side.
The CRA’s returned goods guidance allows you to deduct the GST/HST adjusted, refunded, or credited when determining net tax for the reporting period in which you issued the credit note or received the debit note, as long as that amount was previously included in your net tax. You do not file an amended return for the original sale period solely because the customer returned the item later. The adjustment goes into the period in which the credit note or debit note is issued or received.
For the adjustment to be valid, the credit note or debit note must contain the prescribed information: an indication that it is a credit note or debit note, the supplier’s business or trading name and business number, the customer’s name, the issue date, and either the tax adjustment amount or enough information to show that the total includes the tax adjustment and applicable tax rate. In practice, a refund processed through Amazon, Shopify, Etsy, or eBay may generate the transaction record you need, but your accounting records still have to capture the tax portion of the refund separately from the product price and tie the adjustment back to the original order.
Example. An Ontario buyer purchased a product for $113.00, including $13.00 in HST. You originally reported $100.00 in revenue and $13.00 in HST collected. You later issue a full refund. In the current period, you report a $13.00 negative adjustment to net tax, reducing the amount you owe CRA. Your revenue for the year is reduced by $100.00.
Partial refunds work the same way. A $56.50 partial refund on an Ontario sale includes $6.50 in HST. The adjustment is $6.50. Revenue is reduced by $50.00.
GST/HST on Chargebacks
A chargeback can have the same GST/HST consequence as a refund when the underlying sale is cancelled, returned, or treated as a price reduction. In that case, use the same credit note or debit note mechanism and deduct the GST/HST portion in the period the credit note is issued or the debit note is received.
Not every chargeback is a refund. If the goods were supplied and the dispute is better characterized as an amount that became uncollectible, the CRA’s bad debt adjustment rules may be more appropriate than the returned-goods credit note rules. In that case, you generally need to have already reported the GST/HST, write off the amount as a bad debt in your records, and claim the tax adjustment on the return that includes the write-off.
The difference from a normal refund is that you did not initiate the reversal, you may dispute it, and you may ultimately recover the amount. If you win a chargeback dispute and the funds are returned, reverse the interim entries and restore the original tax treatment. If you lose, leave the refund or bad-debt treatment in place based on the facts.
Track chargebacks in a separate account in your books. Lumping chargebacks into the refund total obscures your win/loss rate, makes dispute tracking impossible, and can misstate your revenue if partially recovered chargebacks are not recorded on both sides of the dispute outcome.
Chargeback Fees
When a chargeback is filed against your account, Shopify Payments and most payment processors charge a chargeback dispute fee. Amazon has its own dispute handling and may recover the amount directly without a separate fee in some cases. Etsy payments are subject to their own dispute terms.
The chargeback fee is a business expense. It is not a reduction of revenue. If the processor’s documentation separately shows GST/HST charged on the fee, that tax may be an ITC-eligible input for registered sellers, provided the normal ITC support is present. Do not assume every payment-processing or dispute fee includes recoverable GST/HST; some financial-service charges may show no GST/HST. Claim the ITC only when the platform invoice or statement supports it.
Platform Reimbursements
Amazon FBA sellers whose inventory is lost or damaged inside an Amazon fulfillment centre are eligible for reimbursement under Amazon’s FBA inventory reimbursement policy. Amazon calculates the reimbursement based on the fair value of the item and credits it to your seller account. It appears on your settlement report as a reimbursement line.
This is income. It is not a reversal of cost of goods sold. It is not a sale. It is compensation for a business loss, and it should be included in business income when received or receivable under your accounting method. The accounting entry is a debit to your bank or seller balance account and a credit to a reimbursement income account (a separate line in your income statement, distinct from product revenue).
For a typical Amazon FBA lost or damaged inventory reimbursement, GST/HST should not be recorded as if you sold product to Amazon. Amazon is not buying inventory from you in the ordinary course of that transaction; it is compensating you for a loss. Unless the platform statement shows a taxable supply or tax adjustment, there is no GST/HST collected and no ITC to claim on the reimbursement itself.
The reimbursement amount should not be credited against cost of goods sold unless you have also recorded the inventory write-off that generated the reimbursement claim. If you wrote off the lost inventory (debit loss, credit inventory), the reimbursement income offsets that loss on the income statement. If you did not write off the inventory, the reimbursement income appears alone without the corresponding loss — which overstates both income and inventory.
Sellers who do not audit their reimbursement claims regularly leave money unclaimed. Amazon’s automated reimbursement process does not catch every qualifying loss. A periodic reconciliation of your inventory removals, lost items, and received reimbursements against what you should have been reimbursed is a standard part of FBA account management.
Revenue Recognition: The Gross vs Net Problem
A common recording error is booking the net deposit — after platform fees, refunds, and chargeback deductions — as gross revenue. This understates both revenue and the corresponding expenses, misrepresents the scale of your operation, and produces an inaccurate GST/HST calculation.
Your gross revenue is the total amount buyers paid for your products before platform deductions, excluding GST/HST or other sales taxes you collected as a liability. Your cost of platform fees, refund processing, and chargeback costs are separate expenses. When a refund occurs, gross revenue goes down by the refund amount before tax. Fee credits depend on the platform and fee type: some processing or transaction fees may be credited automatically when a refund is processed through the platform, while listing, advertising, fulfillment, or other fees may remain. Check the platform’s specific refund fee policy and reconcile the fee credits separately from the sales reversal.
On Amazon settlement reports, refunds appear as negative amounts within the same category as sales. On Shopify, refunds are reported in the Finances section and reduce gross sales. On Etsy, refund activity appears in your payment account and must be reconciled against the monthly statement. On eBay, refunds appear in the transaction history within seller hub. In each case, the platform report is a starting point, not a finished ledger entry.
Inventory on Returns
When a customer returns a product and the item is resalable, your inventory increases. The entry is: debit inventory (at cost), credit cost of goods sold — reversing the original COGS entry for that unit. At the same time, revenue is reduced by the refund amount.
When the returned item is not resalable — opened, damaged, or unsellable for any other reason — it should not be reinstated to sellable inventory at its original cost. If the original sale already relieved inventory and recorded COGS, leave that COGS in place or reclassify it to a returns/write-off account. Do not both leave the original COGS and record a second write-off for the same unit. If the item had already been put back into inventory before being graded as unsellable, write it off at that point: debit loss on returned inventory (or write-off expense), credit inventory. Revenue is still reduced by the refund.
Tracking the condition of returned inventory is a physical process, not just an accounting one. For sellers with high return rates — electronics, apparel, consumables — the split between resalable and non-resalable returns affects both the inventory valuation on your balance sheet and the cost recognition on your income statement.
Recording Workflow by Event Type
Return with refund:
- Debit sales returns and allowances (or otherwise reduce sales) for the pre-tax refund amount
- Debit GST/HST payable or record the line 107 adjustment for the tax portion, supported by the credit note or debit note
- Credit bank, seller balance, or accounts receivable for the total refund issued
- If item is resalable: reverse original COGS entry and reinstate inventory
- If item is not resalable: leave the original COGS in place or reclassify it; only record a separate write-off if the unit had been reinstated to inventory
Refund without return:
- Reverse revenue by refund amount
- Record GST/HST credit note adjustment
- No inventory movement
Chargeback:
- Hold the disputed amount in a chargeback clearing account until the dispute outcome and tax treatment are clear
- If the chargeback is effectively a refund or cancelled sale: reverse revenue and record the GST/HST credit note adjustment
- If the chargeback is an uncollectible amount after goods were supplied: consider the bad debt adjustment rules instead of treating it as a refund
- Record chargeback fees as expenses, separate from the revenue reversal
- If disputed and won: reverse the interim entries when funds are recovered
- Track open chargebacks separately until resolved
Platform reimbursement:
- Record as reimbursement income (a separate income account, not revenue)
- If inventory was previously written off: the reimbursement offsets the prior write-off
- No GST/HST adjustment
Reconciliation
Platform month-end statements should reconcile to your books. For each channel, the statement total should match the sum of: gross sales minus returns and refunds, minus platform fees, minus chargeback deductions, plus reimbursements credited, adjusted for any balance carried forward.
If the reconciliation does not close, the gap is either a recording error in your books or a transaction on the platform statement that has not yet been entered. Unreconciled amounts that accumulate across months become difficult to resolve and represent either understated revenue or overstated expenses, both of which create filing risk.
For sellers with significant return rates, chargeback volumes, or Amazon FBA reimbursement activity, reviewing the reconciliation monthly rather than quarterly reduces the size of any corrections needed and keeps the GST/HST filing position accurate through the year.