Navigating Canada's New Excise Tax: Shielding Merchants with Expense Defence
- noah816
- Oct 19, 2023
- 3 min read
October 18, 2023
Author: Noah Fitzgerald, CPP
Merchant services and payment processing have always been topics of keen interest among regulators, merchants, and service providers, particularly concerning fees and associated costs. Canada maintains a relatively low total cost of acceptance, averaging around 2.1%. However, recent changes to the Canada Excise Tax will have a significant impact on financial institutions and businesses involved in card payments.
In May 2023 Federal Budget, introduced substantial alterations for financial institutions and businesses engaged in processing card payments. Utilizing the Excise Tax Act (ETA), all payment processors, financial institutions, and merchants are now obliged to pay GST/HST on select charges imposed by card networks.
When Does the New Tax Take Effect?
The tax revisions were proposed in May 2023 and were implemented on July 1, 2023.
Who Does This Affect?
The implications of this tax will be far-reaching, affecting businesses providing or accepting card-based payments, including payment processors, financial institutions, and merchants. Moreover, consumers will experience the repercussions as these fee increases will translate into higher costs for the products and services they purchase.
Scope of the ETA
For financial institutions and payment processors, GST/HST will now be levied on network fees charged by Visa, Mastercard, American Express, Discover, Interac, JCB, and others. This represents an incremental rate applied to the total payment volume accepted by each merchant. For merchants imposing a "surcharge" on cardholders, the surcharge amount will also be subject to GST/HST.
Impact on Merchant Processing Fees and Costs
Typically constituting 0.08% to 0.15% of the total volume processed, card brand network fees will now be taxed based on regional rates, potentially impacting the total cost of acceptance.
Businesses implementing a surcharge will need to apply GST/HST to the entire surcharge fee, for example, a 3.00% surcharge on a total transaction amount of $100.00 is $3.00 and the Merchant will be charged 13% HST on the $3.00 or an additional $0.39 .
What to Look Out For?
Every change in the payments industry provides the opportunity for the introduction of new costs. As a result, businesses need to monitor their providers for any additional fee adjustments. Processors are mandated to notify clients of pricing and fee changes through monthly billing statements, emails, or mailed letters. It's crucial for businesses to scrutinize these notifications to understand the impact to fees charged by their providers.
As a business operator, vigilance is key when operational costs from vendors increase. However, deciphering the reasons behind these hikes can be challenging for non-experts. This is where the experts at Expense Defence come in.
The Role of Expense Defence
Expense Defence specializes in select vendor verticals, including payment processing, cellular services, internet, telecom, monitored security and property tax. Their comprehensive analysis of vendor statements and contracts uncovers potential and often significant savings. On average, Expense Defence achieves savings of over 20% on current provider fees and charges by working collaboratively with existing vendors to renegotiate services and reduce costs.
Moreover, Expense Defence provides ongoing monthly analyses to validate savings and ensure no additional fees or costs creep back into the contracted services. In essence, Expense Defence acts as a shield, protecting clients from overpaying for commodity services and allowing them to focus on their core business operations.
Conclusion
In the wake of Canada's recent Excise Tax amendments, the impact on payment processing costs to merchants is substantial. Adapting to these changes requires vigilance and strategic approaches to mitigate increased costs. Expense Defence offers a proactive solution, serving as a safeguard against excessive vendor cost hikes. By partnering with Expense Defence, businesses can navigate the altered landscape and focus on what they do best. To learn more about Expense Defence please visit www.expensedefence.com
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