Great News For SMEs in Canada: Federal Government Lowers Credit Card Fees

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    16 Jun 2023
    In the latest federal government news, the Department of Finance, Canada, has announced reduced credit card fees for small businesses. SMEs will benefit significantly from the latest change introduced by the government.   

    Interchange Fees Lowered For Small Businesses

    During the Budget 2023 announcement on March 28, the deputy prime minister of Canada also promised to lower the transaction fee for credit cards for small businesses. It has fulfilled the promise by disclosing its finalized agreements with Canadian credit card companies Visa and Mastercard.  New MasterCard & Visa interchange fee rates under the agreement:   
    Subject Type of transactions Difference
    Reducing domestic customer credit interchange fees  In-store transactions  Annual weighted average interchange rate of 0.95%
    Reducing domestic customer credit interchange fees  Online transactions 10 basis points reduction, resulting in of reduction of up to 7%
    Free access to online fraud and cyber security resources for assisting businesses in growing online sales, while also safeguarding them from frauds and chargebacks.
    Note:
    • New changes will not adversely affect the interchange fee of other businesses.
    • Also, it will not affect the reward points consumers receive for using their cards.
    • The new rate will come into effect by fall 2024 for systems to update the changes.
    Need Help? Talk to our CPA in Surrey Canada and find out how much gain your business will receive from the revised MasterCard and Visa interchange fees.  

    How Will Qualifying SMEs Benefit From The Lesser Credit Card Fees?

    Any business accepting payments through credit cards pays a fee to the card-issuing financial institutions. The interchange fee is the most significant component of these payments. The revised charges will benefit more than 90% of qualifying card-accepting businesses.  SMEs can expect their interchange fee lowered by up to 27% from the present weighted average rate. Over the next 5 years, the eligible SME sector will save around $1 billion. It will give them more funds to invest and grow their business.  An enterprise will individually benefit from each credit card network. For example:  
    Annual Visa sales volume Less than $300,000 Qualify for a lower interchange fee from Visa
    Annual MasterCard sales volume Less than $175,000 Qualify for a lower fee from MasterCard
    NGOs with these transaction thresholds are also eligible for the benefit.

    Examples: 

    • There is a sports store that earns $300,000 through credit card sales. Out of this, $200,000 is earned through Visa sales, and $100,000 via Mastercard. Every year, they paid $4,000 as an interchange fee for receiving payment via credit cards for their sales. 
    However, the new law will allow a saving of 27% or $1,080 every year. It will give the sports store more money to invest in their business.
    • In another example, a bookshop registers sales of $120,000 with credit cards annually. Out of this, $70,000 were via Visa sales and $50,000 through Mastercard. As of now, the business needs to pay $1,600 every year as an interchange fee.
    However, the new changes will help the business save $432 every year, given they save 27% every year. It will help them in their business expansion.

    Wrapping Up!

    From 2024 onwards, all qualifying businesses will be able to save a significant amount of their payment processing fee. Every penny saved helps these businesses secure next week’s wages of workers and purchase new equipment. The purpose of this new change in processing fees was to ensure that SMEs get more funds for expanding their business. However, every business operates differently. Hence, if you also own a restaurant, retail shop, or any type of SME business, it is necessary to consult a tax accountant Surrey to find out if your business can save a significant amount of money. CJCPA can help you with business compliance, tax filing, cash flow management, and more such areas of finances.
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