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The question which arises in this context is whether a vendor who forfeits a deposit under a validly terminated contract for the sale of a principal place of residence, or who sues to recover an unpaid deposit and damages for breach of contracts, is liable for capital gains tax on the amount of the forfeited deposit.

Above is an extract from a text book. It is explaining the tax implications when deposit is forfeited to a vendor. The vendor does not pay deposit, the purchaser does.

In the dictionary the word forfeit is defined as "to lose something or have something taken away from you because you have done something wrong."

However, in the above sentence the word forfeit is used as to mean seize or take, an exact opposite of the meaning shown in the dictionary.

Is the above usage correct?

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  • The full (subscription-only) OED includes four separate definitions of the verb forfeit where the meaning is essentially to cause the forfeiture, but they're all marked as "obsolete" to one degree or another. Yours is a comprehensible, but rather unusual usage.
    – FumbleFingers
    Commented Feb 25, 2016 at 14:08
  • There are two scenarios. 1) Vendor has been paid a deposit, but the contract is terminated validly, hence the vendor must return (forfeit) the deposit; 2) contract is executed but no deposit was paid, and so the vendor must sue to recover the unpaid deposit. In #1, the vendor has done nothing wrong; vendor must simply give up the deposit monies it has received since the termination provisions of the contract have been followed. The tax implications of having had the money in hand for some period of time go beyond the scope of this site.
    – TimR
    Commented Feb 25, 2016 at 14:38

2 Answers 2

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Only after reading the quote three times did I become sure that you are right, because who forfeits a deposit absolutely does not mean who receives a forfeited deposit to me.

Either this is a very special use in the world of finance or law, or it is plain wrong. If the former, then as you say, it is a use directly contrary to the general meaning of the word.

Edit: TRomano has convinced me that this answer is wrong, and that forfeit can have its normal meaning here. What is then confusing about the quotation is that it is linking together two very different circumstances: one where the vendor temporarily holds the deposit and then forfeits it (loses it) and the other where the vendor never received the deposit in the first place, but sues to obtain it. Bringing these two, almost opposite, cases in the same condition is what makes it hard to interpret forfeit in its usual meaning.

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  • It's as per my comment. You could "creatively" use forfeit to mean cause to be forfeit even if you weren't aware of the archaic / obsolete usages, but as it happens you'd have history on your side anyway.
    – FumbleFingers
    Commented Feb 25, 2016 at 14:12
  • I didn't know that.
    – Colin Fine
    Commented Feb 25, 2016 at 14:14
  • I also had to read the quote a few times for it to make sense. I wonder if the meaning is intended to be something along the line of [forces a forfeit upon the purchaser] since the power is in the hands of the vendor. They effectively make the decision to forfeit in place of the purchaser's judgment. As I typed, I see that FumbleFingers commented with roughly the same thought.
    – Dr.DrfbagIII
    Commented Feb 25, 2016 at 14:15
  • It's a tax question. Vendor gets a deposit and has it for a while. Vendor then forfeits the deposit. The legal question is, Does the forfeiture entirely negate the capital gains tax, or is capital gains tax paid nonetheless, with the vendor claiming loss which would offset taxes owed other than capital gains taxes.
    – TimR
    Commented Feb 25, 2016 at 14:52
  • @Colin: I didn't know that usage had "history" either, but we can both see it's the only interpretation that makes sense in context here. And I think I'd be safe in saying that (working from the current noun sense, rather than that of the verb which I suppose came later) it wouldn't be an unreasonable "coinage". But I really couldn't guess whether the writer in this case actually knew whether he was "creatively coining" a usage, (re-)inventing it, or simply "reviving" an effectively obsolete sense.
    – FumbleFingers
    Commented Feb 25, 2016 at 15:10
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Forfeit also has the meaning to give up or to surrender.

The injured player forfeited his match since he could not continue

Your text asking the question does the vendor need to surrender their deposit on a v=validly terminated contract. Usually if contracts are validly terminated (usually by mutual agreement), the deposits are returned.

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  • Read it again, Peter. I agree with your statement on the word, but that meaning doesn't make sense in the example given.
    – Colin Fine
    Commented Feb 25, 2016 at 14:09
  • I don't think this is the right answer. You've listed the normal meaning of the verb form, but in OP's example it's the abnormal / obsolete meaning (the vendor here retains the deposit, he doesn't give it up).
    – FumbleFingers
    Commented Feb 25, 2016 at 14:10

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