Gift cards are convenient. They are more like prepaid cards and gain popularity from consumers and merchants. Do you know how HST/GST works around with gift cards?
When companies sell gift certificates, according to sec.181.2 of the ETA, the sale is deemed not to be a taxable supply. As a result, it does not attract GST/HST. Upon redemption, GST/HST would apply based on the value of the consideration for the supply against which the gift certificate is being redeemed.
However, GST/HST may apply at that time depending on the tax status of the supply. Isn’t it interesting? For example, Bank gift card.
Let’s say, Company A sells a stored value gift card issued by a Chartered bank at is accepted as a means of payment for supplies made by various merchants. Cardholder purchases are limited to the amount of money loaded onto the card. At the time of purchase, Company A charges a fee to the cardholder to initiate the card, load the card and open an account with a Chartered bank. Company A as a sponsoring entity carries all activities necessary to set up the card account. The Chartered bank charges a fee to the cardholder for the maintenance of such an account. Based on this situation, sec.181.2 does not apply to the sale of the gift card. Although the card has some similar attributes to a gift certificate, this type of gift card is not a gift certificate.
Apart from HST implication, as employer, you may need to pay attention to gift cards given to employees. Those gift cards are taxable from Income tax perspective. If staff receives $150 gift cards to the Keg, then you as employer need to include this amount as taxable benefit and report them in T4. Obviously, it is also subject to payroll deduction. You may ask why? According to the CRA rules, a gift certificate is near cash, and always taxable. Mind you, no EI premium is required if it is a non-cash benefit. Gift cards/certificates are near-cash taxable benefits, which are treated the same as non-cash taxable benefits. CPP contributions and income tax have no exceptions. You have to deduct from taxable benefit.
If you have challenges in HST on your business, give us a call @647-872-6656. We surely can help!
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