Canada Says Goodbye to the Penny. What Does it Mean?
No more pennies for your thoughts. Your thoughts will either have to be free or rounded up to a nickel. As of February 4th, the Royal Canadian Mint ceased production and distribution of the penny.
Why Get Rid of The Canadian Penny?
This has actually been the subject of debate for decades. Experts have been pointing to the rising costs of producing the penny relative to its face value for years. Aside from the production costs, significant handling costs are imposed on retailers, financial institutions and the economy in general
There are also environmental advantages to phasing out the penny, as well as reducing the accumulation of pennies in Canadian households.
How Does This Impact Canadian Consumers?
To start, your purchases will either be rounded up or rounded down. However, this only happens when you pay with cash. Also, the GST/HST will not be rounded and still calculated on the taxable supply.
This is how purchases will be rounded:
- Amounts ending in 1 cent and 2 cents are rounded down to the nearest 10 cents;
- Amounts ending in 3 cents and 4 cents are rounded up to the nearest 5 cents;
- Amounts ending in 6 cents and 7 cents are rounded down to the nearest 5 cents;
- Amounts ending in 8 cents and 9 cents are rounded up to the nearest 10 cents;
- Amounts ending in 0 cent and 5 cents remain unchanged
How Does This Impact Canadian Businesses?
Any additional revenue or expense due to the rounding of pennies will constitute income for a tax year and is included in the taxpayer’s profit from the business for the year per S.9 of the Income Tax Act.
Also, when issuing cash refunds, the GST/HST is still calculated on the amount refunded for the items returned and the rounding only takes place on the total refund amount after including GST/HST and so it does not have an impact on GST/HST.
Does This Increase My Risk of Getting Audited?
CRA will continue to use the same risk assessment and management techniques prior to the penny’s phasing out to analyze tax and HST returns. Businesses are not going to be more likely to be subjected to an audit.