One popular way to attract new customers and retain existing ones is to use various types of gift vouchers. These are especially popular for online stores and ECommerce websites, as it serves as an incentive for a potential consumer to take a look at one’s website. Shopify Gift Vouchers are an example of this. However, as effective as these are, many online store owners may have the concern that the goods and service tax (GST) for gift vouchers may be charged twice!
If you are an ECommerce business owner who is concerned about this, it pays to understand what happens behind the scenes. To know if the sales tax is being double-counted, this blog post will shed some light as to what you need to know.
GST for Shopify Vouchers: Are They Being Double-Counted?
Most of the time, there is no issue with the GST, and this tax is usually applied correctly. However, there may be some instances where this tax may indeed be double-counted. However, to understand how this happens, let’s first look at how these gift vouchers are being issued.
How Are Shopify Gift Vouchers Issued?
There are two ways by which a customer can come into the possession of a Shopify gift voucher. The first method is that the gift voucher is purchased by the customer to use in the future. They may give these vouchers as gifts to others or use it themselves. There is usually no problem with this method.
However, most of the time, the tax may be doubled if the second method is used. This is when gift vouchers are manually issued by the seller as a means to thank the customer for repeat transactions or to apologise for delays in the shipment or other concerns.
What Happens When Gift Vouchers Are Manually Issued?
Keep in mind that if a gift voucher is manually issued as a form of “apology,” the sales tax gets applied to the same transaction twice.
The first time is when the product is initially purchased, which is the norm. If the item is returned and a gift voucher is manually issued as a refund, sales tax will again be applied to the transaction using the gift voucher once it will be redeemed by the customer!
The Suggested Workaround
There are two solutions to help you avoid this situation. The first one is to offer discount codes instead of gift vouchers as a way to compensate for any untoward incidents with your customers. However, the problem with this workaround is that discount codes are not easy to track, and they may expire in the near future.
This brings us to the second workaround. You may use the “exchange for store credit” option on the Shopify POS to avoid you having to process the gift card manually. This will eliminate the original problem and tax error that occurs if you manually issue the gift voucher. This method will refund the customer using a gift voucher but will also amend the tax problem!
Now that you know this information, you may be able to avoid using and issuing Shopify gift cards manually, knowing that they may double up the Sales and GST tax being counted on your sales. Using the above-mentioned solutions may help you work around this error and avoid the mistake in the long run.
If you think you need help computing your taxes, or if you need advice as to your ECommerce sales, contact The ECommerce Accountant. We have skilled and experienced business advisors specifically meant to help online stores and influencers. Get a Shopify accountant in Australia and connect with us today!