HST coupon rules add confusion in Ontario

Ontario shoppers are discovering the value of a coupon isn't what it used to be with the addition of the harmonized sales tax.

Ontario shoppers are discovering the value of a coupon isn't what it used to be with the introduction of the harmonized sales tax.

Consumers accustomed to clipping coupons issued by manufacturers or stores to save a few dollars may not have noticed that in some cases they were paying five per cent GST on the full price of an item — not the reduced price — after using the voucher.

But since the combined provincial-federal HST of 13 per cent came into effect on July 1, customers are now paying attention.

"I thought I was saving more," said Curtis Bulatobich as he flipped through a drugstore coupon book. "For instance there are razors and I thought you saved $2 but you're still paying the full price HST."

The rules are not easy to follow for consumers, because whether a coupon reduces both the sale price and the taxes depends on the kind of voucher issued.

According to the guidelines published by by the Canada Revenue Agency, manufacturers coupons already include the GST or HST in their discount, and so are treated as if they were cash by retailers. The product itself costs less but the tax is calculated on the regular price.

For store-issued coupons, the rules are more flexible, with some retailers choosing to deduct the coupon from the price before calculating the tax while others treat the coupons like manufacturers coupons.

2-for-1 items exempt

Meanwhile, some coupons — such as two-for-one vouchers or bulk discounts (five per cent off when consumers purchases three or more items e.g.) — reduce the price of a sale item before tax is calculated, said Canada Revenue Agency spokeswoman Rebecca Merrett. So two-for-the-price-of-one deals do not force consumers to pay taxes on a free item.

"For example, a consumer redeems a 2-for-1 coupon on the purchase of two bottles of soda and is charged the price of one bottle for the purchase," Merrett said in an email. "GST/HST is calculated on the price of one bottle of soda since that is what the consumer paid as consideration for the purchase."

Grocery store customers face an additional layer of confusion, as prepared food such as a barbecued chicken in the deli is subject to the full HST while chicken in the meat department is not taxed at all.

Ironically, retailers such as bookseller Chapters are turning to coupons as a means of helping consumers "beat the HST."

Katrina Hadden, a representative with Smart Canucks, one of Canada's largest online coupon distributors, says savvy customers are looking to reduce their spending with the HST raising prices on some goods, and coupons are still part of the equation.

"Consumers are starting to cut back on their spending and resorting to sites and coupons," Hadden said. "But they are starting to combine them with flyers and promotional deals in the stores."

Bulatobich said while doubling or tripling up on coupons and sales might save a few dollars, he also thinks it may not be the simplest way to go.

"Any savings is good," Bulatobich said. "But I could always just buy a cheaper brand."

With files from the CBC's Ashley Burke