A taxing situation for Canada’s c-stores

Big banks, credit card networks, and now payment processors continue to download their marketing and other costs to merchants. First, there was the disappointing announcement on credit card fees. The latest salvo comes from payment card networks who will now be passing on to retailers a 13% increase (the HST) as a result of a federal court ruling. When will the federal government step in and realize that enough is enough for Canada’s convenience retailers?

At their May announcement, despite their long-standing promise to help Canadian small businesses and retailers, the federal government instead caved to the pressure of credit card networks and big banks.

When the federal government announced that it was reducing interchange fees for credit card processing in the last federal budget, our members were cautiously optimistic. There was hope that the government would finally address a growing and costly issue negatively impacting our industry.

But the announcement on lowering credit card fees at a Brampton bookstore last month is essentially a broken promise.

Despite the fanfare celebration by Ministers Freeland and Ng during the announcement, the voluntary reduction of credit card interchange fees will exclude the vast majority of small business across the country and do nothing to reduce the estimated $10 billion in annual interchange swipe fees businesses pay.

The reality is that the voluntary thresholds of $300,000 for Visa sales and $175,000 in Mastercard sales, exclude any company with annual sales of more than $1 million. In fact, the total savings for those micro-businesses that would qualify, would add up to no more than $1080 per year.

No, it’s not a bad joke, the announcement does nothing to help small businesses, specifically convenience retailers, who are being treated no differently than massive corporations like Wal-Mart or Costco.

As a result, offering the consumer the convenience they demand by paying with a credit card so they can collect loyalty points, has now become a major cost of doing business.

The convenience industry is impacted more than most due to high taxes that we collect (at a cost to us) for government. In fact, 42% of our total annual $54 billion in sales are tax. Since the early days of the pandemic, we’ve seen a dramatic increase in the use of credit card purchases – 55% in the last 18 months alone.

The result is a perfect storm of skyrocketing costs in offering convenience and choice in Canada’s convenience channel. We’ve estimated that it costs the average convenience store approximately $30,000 annually just on the tax portion of credit card purchases.

It’s not a surprise that interchange fees have now surpassed real estate as the second-highest cost of doing business. And that’s just simply unsustainable.

Three c-stores closed their doors every day in 2021 which is very concerning, especially when the
majority of the closures are taking place in rural communities across Canada where the local c-store is the provider of essentials goods. When these stores close, the ripple effect on the communities is severe.

That’s why CICC continues to hold the government’s feet to the fire on this issue. In partnership with the Canadian Federation of Independent Grocers (CFIG) as well as l’association des détaillants en alimentation du Québec, we have collectively written to each MP in Canada, requesting that he/she reinforce to Ministers Freeland and Ng that the interchange policy fails the majority of Canadian small businesses in Canada, and to live up to their promise to rectify the issue.

As if this wasn’t enough, we started hearing some of our members that their payment card network operators will soon be passing on the HST on certain services, as a result of a federal court ruling that these services should not be exempt from HST.

This is a double whammy for the convenience industry: not only do we not stand to benefit from the “reduced” interchange fees, but we will now be faced with an increase from processors. We won’t allow this to fly under the radar.

Looking forward, we will continue to advocate on this issue, including the introduction of some mechanism, such as a tax credit, for convenience store retailers that would offset their costs of collecting taxes via credit card purchases. It is perverse for Ottawa to expect that our industry should bear the cost of being a tax collector for them.

CICC is committed to being on your corner and in your corner to ensure that the federal government introduces solutions that provides meaningful relief for our retailers.

The viability of Canada’s convenience stores and the health of thousands of communities across Canada depend on it.