Tax on Gift Cards in Canada

Gift cards are a popular way to give a present or reward someone. They are also a convenient way to pay for purchases at various retailers. But how are gift cards taxed in Canada? Here are some things you need to know.

What are gift cards?

A gift card is a prepaid card that you use to pay for purchases. You can use gift cards at a single retailer or at a group of retailers, such as a chain or shopping mall. Generally, gift cards come with money already on them. Gift cards can be physical or virtual.

Gift cards are not branded with a payment card network logo, such as Visa, Mastercard, or American Express. Cards with these logos are called prepaid cards and have different rules.

How are gift cards taxed?

When you buy a gift card, you don’t pay tax on it. The retailer will charge tax when you buy a taxable item with the card. For example, you pay tax on a sweater you buy with a gift card, the same as you would when you pay with cash or credit.

Gift cards are exempt from tax if they are purchased for a set dollar amount, such as $25 or $50. However, if the gift card is for a specific product or service, such as a haircut or a massage, the tax is applied when you buy the gift card.

Do gift cards expire?

Most gift cards don’t expire. However, depending on the rules in your province or territory, some gift cards may have an expiration date. These include:

  • Promotional or charitable gift cards: These are gift cards that businesses give as part of a promotion, loyalty program or to raise money for charity. These cards are usually only for purchases at a specific retailer or group of retailers. They often have an expiry date.
  • Gift cards for a specific service: These are gift cards that let you buy a specific service, such as a haircut or a massage. These cards may have an expiry date.

You should check the terms and conditions of any gift card you buy or use to see if it has an expiration date.

Are there fees to use or buy a gift card?

Generally, there are no fees to use or buy a gift card. However, in some provinces or territories, retailers may charge a fee to:

  • Replace a lost gift card
  • Customize a card
  • Activate a card
  • Maintain a gift card from a shopping mall after a certain period

You should check the terms and conditions of any gift card you buy or use to see if there are any fees.

Is there a gift tax in Canada?

There is no gift tax in Canada for individuals who receive a gift, as long as it is not income from employment, business, or property. This means that if someone gives you money or property as a gift, you do not have to report it to the Canada Revenue Agency (CRA), and there shouldn’t be any tax implications.

However, there may be tax implications for the giver of the gift in some cases. For example:

  • If you give someone property that has increased in value since you acquired it, such as shares or real estate, you may have to report and pay tax on the capital gain.
  • If you give someone money that earns interest, dividends or capital gains, such as in a savings account or an investment portfolio, you may have to report and pay tax on the income attributed to you.
  • If you give someone money that they use to contribute to their registered retirement savings plan (RRSP), registered education savings plan (RESP) or tax-free savings account (TFSA), you may affect their contribution room and tax benefits.

You should consult a tax professional before giving someone a large or complex gift to understand the potential tax consequences.

Conclusion

Gift cards are a convenient and popular way to give and receive gifts. However, they also have some tax rules and regulations that you need to be aware of. Depending on the type and value of the gift card, there may be different tax treatments when you buy or use it. There may also be different rules regarding expiration dates and fees. And if you receive money or property as a gift, there is no gift tax in Canada, but there may be tax implications for the giver. By knowing these facts, you can make informed decisions about your gift cards and gifts.

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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