Receiving Gift Card can be an incredibly delightful and thrilling experience. Often, people anticipate special occasions like birthdays, New Year’s, or Halloween to receive them. However, understanding the tax implications of gifting and receiving gift cards has become increasingly challenging. To avoid any issues with the Canada Revenue Agency (CRA), we have put together this essay to shed light on the tax ramifications of giving and receiving gift cards.
What do gift cards or gift certificates refer to?
Gift cards, also known as gift certificates, are a type of payment card provided by businesses in the form of swipe or chip cards. These cards store a certain amount of money that can be used by the cardholder to purchase products or services from the business that issued the card. Similarly, gift certificates are vouchers that allow customers to make purchases from one or more businesses.
Sales of gift cards and certificates are exempt from taxes. However, when a consumer uses it or certificate to make a purchase, GST and QST must be calculated on the full cost of the products or services, just as they would be if cash were used. The value of the gift card or certificate is considered to cover all or a portion of the purchase price.
Do I need to pay taxes when purchasing a gift card worth $50 or $100?
No, purchasing gift cards for a specific dollar amount is tax-exempt. However, when the gift card is used to purchase a taxable item, such as a coat, tax must be added to the total cost of the item.
If a gift card is bought for a specific dollar amount, it is not subject to taxes. However, when using it to purchase a taxable item such as a coat, the tax must be added to the total cost of the item.
Here are the key takeaways:
- Businesses offer gift cards or gift certificates as a form of payment.
- Gift card and certificate sales are tax-exempt if they are purchased for a specific amount.
- Tax is applied only when a taxable item is purchased using the card.
- The Canada Revenue Agency (CRA) requires that the value of the gift card or certificate is factored in when calculating the total cost of the products or services.