Finance Canada
Harmonized Sales Tax - Technical Paper: 3


3. Tax-Inclusive Pricing

Basic approach

Pricing requirements under harmonization are designed to ensure that consumers purchasing a good or service in the three participating Atlantic provinces know the full price of the good or service in advance of its purchase. Consumers have expressed a strong preference for full disclosure of the tax-included price in advance of their purchases. Broader consumer awareness of full, tax-included prices was also a key recommendation of the House of Commons Standing Committee on Finance in its 1994 report, Replacing the GST.

At the same time, the Finance Committee recognized the importance of ensuring that consumers remain aware of the amount of tax paid on each and every purchase, and recommended that receipts and invoices clearly display either the amount of tax paid or that the total purchase price includes sales tax at the applicable rate. Participating governments fully support this objective and are acting to ensure that tax-inclusive pricing is consistent with the Committee's recommendations regarding the disclosure of tax on receipts.

Tax-inclusive pricing requirements will affect mainly those businesses that deal with final consumers.

Result of consultations

Over the past few months, governments consulted with consumers and a broad range of national and local businesses to seek their views on tax-inclusive pricing. The requirements for tax-inclusive pricing have been designed to minimize businesses' costs and maintain a level playing field for businesses while ensuring that consumers know the full price of goods and services before their purchase.

Tax-inclusive pricing requirements

Federal and provincial legislation providing for tax-inclusive pricing will be developed to allow for tax-inclusive pricing in respect of goods or services sold to consumers located in each of the three participating provinces. As noted below, federal legislation will apply across Canada to industries subject to federal regulation.

The proposed requirements will accommodate various business practices. They will apply to in-store pricing, price advertising, catalogues, flyers, as well as receipts and invoices.

In-store pricing

The rules will ensure that the full price of a good or service is apparent to consumers. In-store prices for all goods and services will have to be shown on a tax-included basis, although vendors will have the option of displaying before-tax prices alongside tax-included prices.

Various pricing methods are discussed below. These methods include shelf labels, price tags, pre-priced goods, and posted price lists.

Shelf or bin pricing: The rules will require that shelf or bin prices be expressed on a tax-included basis. Retailers will, however, have the option of displaying both the tax-included and before-tax prices on the same sign or label.

For example, a retailer selling a hammer at a tax-excluded price of $10 will have to show, at a minimum, a posted shelf price of $11.50 (HST-included). The same shelf label could also show the tax-excluded price of $10 in addition to the HST-included price.

Individually priced items: Merchants selling individually priced items will have to show, at a minimum, the full tax-included price. However, these retailers will have the option of displaying both the tax-included and before-tax prices on each item.

For example, a retailer selling a compact disc at a tax-excluded price of $20 will, at a minimum, have to show on the package a posted price of $23 (including tax). In addition to the tax-included price, the tax-excluded price of $20 can be shown on the package.

Menus and price lists: Restaurants and other merchants using price lists will be able to comply with the new pricing requirements by displaying the tax-included price of meals or articles on all menus and price lists. These merchants will be able to disclose the tax-included price by itself or along with the tax-excluded price.

For example, the posted price of a hamburger in a restaurant will be able to be displayed as:

Price advertising

Advertisements that display or mention prices and that are directed at consumers located in the three participating provinces, for example, through newspapers, television or billboards, will be required to prominently display the tax-included price that will be charged in that region. Business will also have the option of displaying the tax-excluded price along with the tax-included price.

Telemarketers will also be required to disclose, before a sale is made, the tax-included prices of goods or services that they are offering for sale.

Catalogues and flyers: Regional catalogues and national and regional flyers will be required to show, at a minimum, the full tax-included price of goods or services offered for sale.

National catalogues (i.e. those that are distributed in most provinces and offer products at the same price for the whole country) will be required to prominently indicate, for consumers located in participating provinces, that advertised prices do not include sales tax. At a minimum, this will require highly visible and explicit notices regarding tax-excluded prices on the front page and on every second page.

Moreover, with respect to national catalogues advertising a telephone number for product orders, full prices will have to be disclosed to consumers at the time of ordering. Catalogues will also have to alert consumers to the fact that full price disclosure can be obtained by calling that number.

Receipts and invoices

The current GST rules prescribing the information required on receipts and invoices for input tax credit purposes will be modified to accommodate tax-inclusive pricing. Businesses will not have to replace their current cash registers and other point-of-sale equipment to meet the tax-inclusive pricing requirements.

Businesses that issue cash register receipts and invoices will be required to show on these receipts that sales tax has been charged. This requirement will be able to be met either by displaying the actual value of tax charged, or by noting on the receipt that the total price charged includes the HST where applicable.

Businesses will have three options for disclosing the tax on invoices or receipts. Since existing cash register systems are capable of handling at least one of these disclosure options, reprogramming requirements for businesses will be minimal. The option chosen will ultimately depend on the vendor's preference or the type of cash registers currently used.

The following examples illustrate how receipts might appear under the various disclosure options.


XYZ VARIETY STORE         This option is similar to   

GST # R123456789          the current method of       

2:36 PM Apr 15.97         disclosing tax on receipts  

 detergent $5.00 T        and invoices.  It will      

 bread $1.00              allow retailers to enter    

 Total purchase $6.00     the tax-excluded amount,    

 HST $.75                 and the cash register will  

 Amount due $6.75         calculate the tax-included  

Thank you                 amount.  This option        

                          assumes that retailers      

                          will display both           

                          tax-included and            

                          tax-excluded prices in      

                          their stores.               



$6.75 (includes HST at 15 per cent where applicable)


XYZ VARIETY STORE          This option allows only    

GST # R123456789           the tax-included amount    

2:36 PM Apr 15.97          to be entered into the     

 detergent $5.75 T         cash register.  It also    

 bread $1.00               assumes that the cash      

                           register is programmed to  

Amount due $6.75           indicate on the receipt    

(includes HST at 15%       that tax has been applied  

where                      at a rate of 15 per cent   

 applicable)               on those items identified  

Thank you                  as taxable. This option    

                           would allow retailers to   

                           display only the           

                           tax-included price.        





$6.75 (includes 75 cents of HST)


XYZ VARIETY STORE          This option will be        

GST # R123456789           possible for retailers     

2:36 PM Apr 15.97          using cash registers that  

 detergent $5.75 T         can break out the tax      

 bread $1.00               component of a             

 HST Included $0.75        tax-included price. In     

Amount due $6.75           such circumstances, the    

Thank you                  tax-included price could   

                           be the only price          

                           displayed in the store.    





Coupons

To facilitate the introduction of tax-inclusive pricing, additional flexibility will be introduced for percentage discount coupons that are issued by a retailer. The new rules are described in Chapter 12.

Commissions

Taxable commissions that are calculated as a percentage of the total price of a sale will not have to be shown on a tax-included basis. This means that commissions such as those charged by real estate agents will not have to include the tax.

Federally regulated industries

Proposed legislation will be tabled in Parliament covering industries under federal regulatory authority, such as air transportation and telecommunications. To the greatest possible extent, these industries will be required to implement tax-inclusive pricing on a national basis. The national application of tax-inclusive pricing to federally regulated industries will be governed by the same rules applicable in participating provinces.

Implementation date

Tax-inclusive pricing will become mandatory on April 7, 1997. During the start-up of the harmonized sales tax, the federal and provincial governments will work together to ensure that consumers and businesses are fully informed of the tax-inclusive pricing requirements. Details regarding the mechanism for monitoring and enforcing these requirements will be made available in the near future.

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