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Should taxes be applied before a discount or after?

By John R Mott |

Lauren asked:

Subtotal= $100.00

If I get a $5.00 discount should GST/PST/HST be charged on $100.00 then the $5.00 discount applied -OR- should taxes be on the discounted amount of $95.00? Some businesses make the discount BEFORE charging taxes while others charge taxes on the original amount BEFORE applying the discount. Which is right?

John R Mott answered:

If you do the math, you will find that both methods are correct and yield exactly the same result. If you assume a 5% discount and a 13% HST rate on a $100 sale item, the total purchase price is $107.35 and the tax portion is $12.35. If the discount is applied after tax is computed, then the discount is effectively pro-rated between the item and the tax. If you are a merchant, it may be simpler to apply the tax after the discount. This way you avoid the need to pro-rate.

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