How to account for taxes if my business sells gift cards or certificates?

If your business sells gift cards or gift certificates, there are certain rules regarding how to account for the taxes.

 Income Tax

You must report, as business income, the amounts received from the sale of the gift cards or certificates on the date they are sold. You may choose to calculate a reserve as a deduction against this income. A reserve is the amount of gift cards or certificates that you anticipate will be redeemed after the end of your fiscal year. A reserve amount that is deducted against business income in one year must be added back to business income the following year. It is optional for you to claim a reserve.

GST/HST

Do not collect GST/HST when a gift card or certificate is sold. When a customer uses a gift card or certificate as payment for a product or service, calculate the GST/HST on the total price of the item or service. Deduct the amount of the gift card or certificate from the amount the customer owes.

 

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