Card processing rules for Toronto merchants

The surcharge cap comes from the networks, and CRA says the surcharge is not taxable

Canada does not regulate credit card surcharging through a general federal statute the way New York regulates price posting. The ceiling comes from the card networks, following a court-approved class action settlement that took effect on 6 October 2022 and allowed Canadian merchants to surcharge credit cards for the first time. Visa Canada's merchant surcharging rules set the limit as the lesser of two numbers: an absolute surcharge cap of 2.4 percent for any transaction, or the average merchant discount rate the merchant pays for that network's credit card transactions. FCAC repeats the 2.4 percent figure in its guidance to merchants and adds the plain-language version — your surcharge must not exceed your actual cost to accept the credit card.

That second half is the part Toronto merchants get wrong. A business that sets 2.4 percent because that is the published maximum, without knowing its own average discount rate for that network, may be above its own ceiling rather than at the industry one. The two limits are not alternatives; you are bound by whichever is lower, and the lower one is usually yours.

Surcharging is permitted on consumer and corporate credit cards only. It is not permitted on debit or prepaid card transactions, and some network operators prohibit prepaid surcharging explicitly. In Toronto, where Interac debit carries a very large share of everyday retail and quick-service volume, that exclusion is not a footnote — it is most of your transaction count. A fee program has to identify the card type at authorisation and apply nothing to the debit ones.

There are procedural conditions too. FCAC notes that some networks require advance written notice to your acquirer or to the relevant participants before you begin surcharging, that surcharges must be clearly disclosed to the cardholder before the transaction is completed, that a surcharge cannot be combined with a service or convenience fee on the same transaction, and that a brand-level surcharge has to be applied uniformly across that network's cards. Quebec prohibits surcharging outright; Ontario does not, which is why a national program written for a Quebec-safe default can leave an Ontario operator paying costs it was entitled to recover.

The tax treatment of the surcharge itself

Here is the piece that is genuinely specific to operating in Canada, and that a Toronto business will not find in any American guide. CRA's GST/HST Info Sheet GI-200, Application of the GST/HST to Credit Card Surcharges, published in March 2023 and last modified 29 September 2023, treats a credit card surcharge as consideration for a separate supply of a financial service. A supply of a financial service is an exempt supply unless it meets the conditions for being zero-rated. The consequence: the surcharge is not subject to GST/HST, provided it is shown and charged separately from the underlying purchase and from other fees.

The condition is not decorative. A surcharge folded into the item price, or bundled with a service charge, is not being shown and charged separately, and the analysis that keeps it out of the tax base no longer obviously applies. If you are running a surcharge in Toronto, how your point of sale composes the receipt is a tax question as well as a disclosure one. Confirm your own treatment with your accountant against GI-200 rather than against a processor's marketing.

Your protections

The Code of Conduct gives you timelines you can hold a processor to

The revised Code of Conduct for the Payment Card Industry in Canada took most of its effect on 30 October 2024, with the balance in force on 30 April 2025, and the complaint-handling machinery is the part most Toronto merchants never use. Complaints must be acknowledged within a maximum of five business days. They must be investigated and addressed within a maximum of 20 business days — 30 for a payment card network operator — with the merchant kept informed, and if a response cannot be given inside that window the merchant must be told why and when to expect one. A substantive written response has to be either an offer to resolve or a denial with reasons. Nothing in that process stops you filing directly with FCAC at any stage.

That is a concrete lever. If a processor has gone quiet on a disputed fee, you are not asking for a favour; you are pointing at a timeline the Code sets. Section 8 of the Code separately protects your ability to offer discounts for different payment methods and differential discounts among card networks, which is the mechanism a Canadian business uses when it wants to steer to lower-cost payment types without running a surcharge at all.

Restaurants and retail in Toronto

For a Toronto restaurant, the combination to watch is a tip-adjusted credit transaction carrying 13 percent HST on the food, a surcharge that must be shown separately and is itself untaxed, and a debit share that cannot be surcharged at all. That is three different treatments on one terminal. Our restaurant payment processing hub covers tip handling, authorisation versus settlement and how the pricing models compare on a restaurant card mix.

For Toronto retail, the Interac line usually decides the answer. High transaction counts at modest ticket sizes push the per-item debit cost up relative to the percentage-based credit cost, and a processor quoting only a credit rate is quoting on the smaller half of your volume. Our retail payment processing hub sets out how to read both lines off a statement.