Phasing out the penny: tax implications for businesses
Phasing out the penny will affect retail cash transactions. This page provides useful information for businesses on these changes.
How to charge GST/HST following the phasing out of the penny
Q1. Do I charge GST/HST before or after rounding?
A1. The GST/HST is calculated on the amount charged for taxable supplies. Rounding should take place after the GST/HST is calculated on the invoice, and only when your customer is paying the total amount of an invoice in cash or paying the balance of an invoice in cash.
Q2. Will the type of payment option (cash, credit, or debit) affect the amount of GST/HST I charge?
A2. No. GST/HST is calculated on the amount charged for taxable supplies. Rounding only occurs after the tax is added to the sub-total. The rounding does not affect the GST/HST required to be collected. You calculate the GST/HST in the same manner as before.
Q3. How is the GST/HST calculated on returned items?
A3. The GST/HST is calculated on the amount refunded for the items returned. Where you issue a cash refund, the rounding would take place on the total refund amount after you have added the GST/HST. The rounding does not affect the calculation of the GST/HST.
How to remit, claim ITCs, and report your GST/HST
Q4. How do I determine the amount of GST/HST I include in my net tax?
A4. The amount of GST/HST that is reported on your return is not affected by rounding as a result of phasing out the penny. There is no change to the manner in which you will complete your return. As usual, you will report on your return the GST/HST you charge and collect, and claim any input tax credits for the GST/HST paid or payable on your business inputs.
Q5. What do I remit for GST/HST purposes?
A5. The GST/HST is calculated on the amount charged for taxable supplies. Rounding only occurs after the tax is added to the sub-total. The rounding does not affect the GST/HST required to be collected. You calculate the GST/HST in the same manner as before.
Q6. What amount do I claim for an input tax credit (ITC)?
A6. The amount you claim as an ITC is the GST/HST charged on the invoice. If the amount charged is tax included, the tax is calculated in the same manner as before. Rounding resulting from phasing out the penny does not affect your ITC calculations.
Q7. How will income tax reporting be affected by rounding (i.e., how to manage the adjustment amount resulting from rounding)?
A7. From an income tax perspective, the amount gained or lost on cash transactions due to rounding will constitute income for a taxation year from a business and would be included in the calculation of the taxpayer's profit from that business for the year pursuant to section 9 of the Income Tax Act. The phasing out of the penny will not create additional bookkeeping for businesses that already keep accurate books and records and should not create any measurable impact on business revenues.
How phasing out the penny will affect the income tax and audit process
Q8. As a business owner, will I have an increased chance of being audited because of phasing out the penny?
A8. Phasing out the penny will not increase a business’s risk of being audited. The Canada Revenue Agency (CRA) will continue to use the same risk assessment and management techniques used prior to the penny’s elimination to analyze every tax and GST/HST return filed and to identify those that should be flagged for further CRA intervention.
To get more information about our audit programs and policies, or to comment on the audit process, contact your tax services office. You can find the telephone number and location in the government section of your telephone book or by going to our Contact us page.
For more information, please see Guide RC4188, What you should know about audits.
For general information for businesses on phasing out the penny go to Finance Canada's Web site.
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