News & Updates
Thinking of Adding Gift Cards to Your Franchise System?
September 06, 2011
Now that paper gift certificates have become as archaic as paper airline tickets, many businesses have discovered the utility and marketing benefits that can be derived from the sale of gift cards. Gift cards are, by their nature, more difficult to destroy, fit naturally into a customer’s wallet and, importantly, refillable. Franchisors who have embraced gift cards for their businesses are well aware of these practical upsides to implementing this tool into their franchise system. Those upsides, however, could be less immediately apparent for franchisees who may have to report redeemed gift cards as part of their gross sales despite not being the original point of purchase.
As a result, gift cards may not be suited for every franchised business in Canada. However, if you are a franchisor incorporating the sale of gift cards into a business plan or a franchisee selling or redeeming them, there are a number of legal and other considerations you should be aware of, beyond just those relating to marketing.
The following is a list of some of the issues that may affect your decision to deal with gift cards:
- pursuant to provincial legislation in 9 provinces, expiration dates on gift cards are prohibited
- most fees in relation to gift cards are prohibited, subject to certain exceptions
- terms and conditions of the use of the gift card must be clearly disclosed
- certain provinces have enacted “escheat” laws, which means that there may be consequences in respect of unclaimed balances on gift card sales
- there is no legal requirement to provide a refund in respect of remaining balances on gift cards following a purchase
In addition to these legal considerations, franchised businesses should also be aware of the tax treatment of unclaimed balances on gift cards at the end of the fiscal year. Interestingly, these issues can vary depending on the type of franchise which you operate.
Tags: Franchising
