Small business owners offer incentives to customers who pay cash to lessen the tax’s impact on the currency.
MOOOMIN — When Heather Truman opened her mail last fall, one letter in particular piqued her interest. From this seemingly innocuous notice, Truman learned of rising credit card charges and upcoming changes to the way those charges were reflected on her monthly statement, including taxes on the charges. .
“As a businessman, let me remind you, they charge Pacific Standard Tax (PST) and Goods and Services Tax (GST) on money,” she said. “It’s not a product, it’s a percentage of what I pay Chase Paymentech. Now other people will have Moneris or whatever company they deal with, but they’ll be taxed on the currency. It doesn’t make sense, but they’re getting away with it .”
In March last year, proposed amendments to the federal budget amended the Goods and Services Tax Act whereby certain services provided by payment card network operators would now be subject to HST. These companies cannot recoup this fee and it affects the fees charged by companies such as Chase and Moneris. The end result means business owners will now have to bear the cost of paying a 13% increase in branding fees.
In response, the owner of Sew Creative & Interiors in Moosomin decided to offer incentives to customers who chose to pay with cash – a system Truman felt strongly should be preserved before it disappeared.
“About two weeks after I got the letter, I started doing it because I thought, OK, I don’t want to pay 11% tax to the government. I’ll give my customers 10% off, and from then on I Start promoting cash,” she explained.
“A lot of people say to me, ‘We have to keep cash flowing.’ Once we give up cash, it’s useless.”
Truman noted that the COVID-19 pandemic has led to changes in purchasing habits, promoting the use of contactless payment methods instead of handling cash.
Another highlight in Truman’s letter details how monthly statements will no longer indicate a single brand fee, but will instead show a single adjustment reflecting updated rates.
When comparing statements before and after the report changed, Truman noted that the new program only charged a few dollars. She attributed the result to the decision to promote cash, but for other businesses the new rates could result in hundreds of dollars in additional costs.
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In early December 2023, the federal government announced agreements with Visa and Mastercard aimed at reducing transaction fees for small businesses. The changes are said to help more than 90 per cent of businesses in Canada that accept credit cards qualify for lower rates and are expected to reduce interchange fees by 27 per cent, saving eligible small businesses a total of $1 billion over five years.
Small Business Minister Rechie Valdez said in a media release: “This is great news for small businesses across Canada, who will collectively benefit from approximately C$1 billion over the next five years. save.”
“With these new deals in place, our government is delivering on our commitment to support small businesses facing higher costs due to inflation and rising interest rates.
“Reducing costs for small businesses will allow them to further invest in their business and its growth, while helping to support their success now and into the future.”
Under the final agreement, consumer credit interchange fees for qualifying small business in-store transactions could be reduced to an annual weighted average of 0.95%; online transactions would be reduced by 10 basis points, to a maximum of 7%; and information on online fraud and cyber fraud would be provided. Safe, free resource. But the changes won’t happen overnight, as the new rates are expected to take effect this fall.
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So how did all this chaos begin? Until then, Canadian business owners simply couldn’t charge customers transaction fees for using their cards. Credit card companies will charge fees of one to three percent on each transaction, fees businesses faced under the old rules were absorbed, resulting in higher fees and lower profits.
In October 2022, litigation began between Visa, Mastercard and a group of Canadian businesses, resulting in businesses across the country now being allowed to charge customers up to 2.4% in transaction costs (except in Quebec). Consumer protection laws still prohibit merchants from charging consumers credit card fees). With this change, businesses began to realize a small amount of additional revenue.
The question then becomes, “Are credit card surcharges taxable?”
Ultimately, it was discovered that credit card surcharges were not part of a business’s revenue, but rather a fee paid for a service provided to consumers – the convenience of paying with a card. This means the surcharge falls under the financial services payment category and is not subject to federal tax. This is a special exception to the Excise Tax Act whereby all credit card surcharges paid on or after March 29, 2023 are subject to GST/HST.
Amid a series of changes in credit card companies, governments and federal laws, one might think that Truman’s “cash discount” idea was a simple yet clever solution to a complex problem.
