The "Double Tax" Myth and Gift Card Reality
There is often confusion at the cash register about when sales tax should appear on a receipt involving gift cards or deposits.
1. Buying a Gift Card
When you buy a $50 gift card for a friend, you should pay exactly $50.00. No GST or HST is added. This is because the card is a "financial instrument"—the government doesn't know what it will be used for yet (it could be used for a 5% GST item or a 15% HST item later).
2. Redeeming a Gift Card
When your friend uses that $50 card to buy a $40 shirt:
- Price: $40.00
- Tax (e.g., 13%): $5.20
- Total: $45.20
- Gift Card Balance Remaining: $4.80
3. What About Deposits?
Deposits (like for a wedding photographer or a car) follow the same logic. If the deposit is forfeited (you cancel and don't get the money back), the CRA considers that forfeited amount to include GST/HST, and the business must remit the tax portion of that deposit.
4. Promotional "Bonus" Cards
If a store gives you a "Free $10 card when you spend $100," that $10 is treated as a discount, not a cash equivalent. The tax is calculated on the reduced price when you use it.