Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 245256
Business Number: […]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Credit card surcharge
Thank you for your letter of [mm/dd/yyyy], in which you requested an interpretation concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to a certain surcharge that your company, […] (the “Company”), plans to charge its customers when they choose to pay for purchases with the use of a Visa or Mastercard credit card.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references herein are to the Excise Tax Act (ETA) unless otherwise specified.
Based on the information that you provided in your letter and our telephone conversation of [mm/dd/yyyy], we understand the following:
1. The Company is a GST/HST registrant that makes taxable supplies […].
2. The Company plans to charge a […] surcharge to customers who choose to pay for their purchases with the use of their Visa or MasterCard credit cards (the “Proposed Surcharge”).
3. The Company intends for the Proposed Surcharge to conform to the surcharge on credit card transactions that is now permitted to be levied by most merchants in Canada pursuant to amendments to the Visa and Mastercard credit card network rules that came into effect in October, 2022.
INTERPRETATION REQUESTED
You would like to know how the Proposed Surcharge would be treated for GST/HST purposes.
INTERPRETATION GIVEN
The amendments to the credit card network rules that came into effect in October, 2022, permit most merchants in Canada to levy a type of fee that was previously not permitted under those rules, being a separate surcharge that is levied solely for the acceptance of a credit card as a method of payment. The network rules require that this surcharge be disclosed to the customer before the transaction is completed and that the customer have the opportunity to opt out of using the credit card upon that disclosure, in which case the surcharge would not be payable. It is thus a choice that the customer makes to take the merchant up on the offer to accept the use of a credit card as a payment method in return for the payment by the customer of the surcharge. In this situation, we view the merchant as providing a service to the customer in allowing the customer to use the credit card as a method of payment and we view the surcharge as an amount of consideration that is attributable to that service.
Considered on its own, the service of accepting the use of a credit card as a method of payment in return for a credit card surcharge falls within the definition of “financial service” in subsection 123(1) under paragraph (i) thereof, which pertains to certain services relating to credit card transactions. Under the GST/HST, a supply of a financial service is an exempt supply, unless it meets the conditions for being a zero-rated supply, which is a supply that is taxable at the rate of zero percent. In either case, there is no tax payable on a supply of a financial service.
In certain circumstances, a charge for a financial service that is connected to the provision of other services or property is treated, for GST/HST purposes, as consideration for a separate supply of the financial service despite the extent to which the financial service and the other elements of the transaction are bound together. For example, this is generally the treatment in the case of a financing charge under an instalment sale contract for the sale of goods, provided there is a clearly identifiable amount imposed as a fee or charge solely for the financial service and that amount is disclosed and charged separately from other charges contained in the details of the transaction.
The situation in which a customer chooses to pay by credit card and thereby incurs a credit card surcharge is considered to be comparable to the situation in which a customer chooses to pay by instalment and thereby incurs a financing charge. In the case of a credit card surcharge that is provided for under the amended credit card network rules, the surcharge will generally be treated for GST/HST purposes as consideration for a separate supply of a financial service where it meets all of the following conditions:
- it is charged to the cardholder solely for the acceptance of the use of the credit card as a payment method and is not charged if another payment method is used;
- it is imposed by (and is thus the revenue of) the merchant who provides, to the cardholder, the property or service that is purchased with the use of the credit card, and not by a person who acts only as a billing agent or payment service provider in facilitating the payment transaction;
- it is subject to the relevant credit card network rules relating to surcharging, including rules regarding the calculation and level of the surcharge; and
- it is shown and charged separately to the cardholder.
Accordingly, the Proposed Surcharge that the Company plans to charge its customers when they choose to pay for purchases with the use of their Visa or Mastercard credit cards would be treated as a fee for a separate supply of a financial service if all of the above conditions were met with respect to the Proposed Surcharge. In that case, the Proposed Surcharge would not be subject to the GST/HST.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 416-709-0130 or my manager, Hélène Lacasse, at 343-571-0207. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Marlene Legare
Industry Sector Specialist
Financial Services Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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