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Subscription revenue accounting starts with one rule: a subscription paid up front isn’t revenue the day the money lands. You book the cash as deferred revenue, then release it into revenue as you deliver the service. For a $1,200 annual plan, that means $100 of revenue a month for twelve months.
When does subscription revenue count as earned?
When you deliver, not when you bill. Under IFRS 15, the standard the IFRS Foundation publishes, you recognise revenue when a performance obligation is satisfied by transferring a promised service to the customer. It’s been in force for periods starting on or after January 1, 2018.
Private companies often report under ASPE instead. Section 3400 covers revenue there, and CPA Canada notes that amendments apply to fiscal periods beginning on or after January 1, 2022, with more guidance on upfront fees and on how to split up a contract. Which framework you use depends on your company, so ask whoever signs your financial statements.
IFRS 15 breaks the job into five steps. Most subscription businesses spend their time on steps 2 and 4.
| Step | What you decide |
|---|---|
| 1 | Identify the contract with the customer |
| 2 | Identify the performance obligations in it |
| 3 | Determine the transaction price |
| 4 | Allocate the price to each obligation by relative stand-alone selling price |
| 5 | Recognise revenue as each obligation is satisfied |
What does a $1,200 annual plan look like month by month?
A customer pays for twelve months on January 1. Your bank balance jumps by $1,200 that day, but your revenue for January is $100. The rest sits on the balance sheet as a liability, because you owe the customer eleven more months of service.
| Month | Revenue booked | Deferred revenue left |
|---|---|---|
| January | $100 | $1,100 |
| April | $100 | $800 |
| June | $100 | $600 |
| December | $100 | $0 |
The straight-line split only fits when you deliver the same service each month. If usage or delivery is lumpy, the pattern should follow the work, and that’s a judgement to write down in your policy.
How do GST and HST fit in?
They don’t belong in revenue at all. You collect that tax for the government, so it stays out of your sales line. The GST/HST calculator shows the split: a $1,200 plan in Alberta adds $60.00 of GST (5%) for a $1,260.00 total, and in Ontario it adds $156.00 of HST (13%) for $1,356.00.
Say you’ve been quoted a tax-included price and need the pre-tax figure. The HST reverse calculator backs it out. We couldn’t confirm the CRA’s rule on exactly when the tax becomes payable on a prepaid subscription, so check that timing on the CRA’s GST/HST pages before you file. The rate depends on the province, and the CRA’s rate table lists them all.
What if a customer cancels or gets a refund?
Take the plan above and imagine the customer leaves after four months with a pro rata refund. You’ve earned $400, and $800 is still deferred, so $800 goes back and the deferred balance clears. Whether a refund is pro rata, partial or nil comes from your contract, so the accounting follows the paper.
Free trials and discounts need a rule too. If you give three months free on an annual plan, the price you allocate has to be spread across the period it covers, and your policy should say how.
Where subscription books go wrong
The most common mistake is treating the cash as revenue. It flatters a strong month and hides a weak one, and the profit margin calculator will give you a number that’s wrong for the same reason. Your lender or investor will spot it.
A second slip is bundling. A plan with setup, hosting and support may hold several obligations, and step 4 above says the price is divided by stand-alone value. Ignore that and your first-month revenue is overstated.
Then there’s the paperwork. Keep contracts, billing dates and a schedule that ties the deferred balance to your ledger every month. A reconciliation that doesn’t match is an early warning, and it’s much cheaper to fix in March than at year end.
Want to see the effect on growth? Try the percentage calculator on month-over-month revenue, once the numbers are booked properly.
Where the numbers come from
The IFRS 15 wording and its 2018 effective date come from the IFRS Foundation. The ASPE Section 3400 amendments come from CPA Canada, 2026 reading. GST and HST rates are the ones the Canada Revenue Agency publishes for 2026. The month-by-month figures are plain division of the plan price. This site has no link with the CRA, CPA Canada or any government.
Frequently asked questions
When do I record revenue on an annual subscription?
As you deliver the service, usually month by month. A $1,200 plan books $100 a month, and the unearned part sits as deferred revenue.
Is GST or HST part of my revenue?
No. You collect it for the government. On a $1,200 plan it adds $60.00 in Alberta or $156.00 in Ontario.
Does IFRS 15 apply to small private companies?
Many private companies use ASPE Section 3400 instead. Ask whoever prepares your financial statements which one you follow.
What happens to deferred revenue if a customer cancels?
Refund the unearned part if your contract says so, and clear that balance. After four months on a $1,200 plan, $800 is still deferred.
How do I handle a plan that bundles setup and support?
Split the price across the separate obligations by their stand-alone selling prices, as IFRS 15 step 4 describes.
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Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.