Shopify Gift Cards: How to Account for them in Quickbooks or Xero

Gift cards are a great way for Shopify businesses to attract more customers. Typically, customers buy gift cards for loved ones because they appreciate a certain brand and would like others to experience something similar that they did. Unfortunately, while selling gift cards is like selling any other product, Shopify owners can list their gift cards as products and customers in return can buy said gift cards at a certain price.

While that is true, handling gift cards in your books can be a challenge. For example, a Canadian Shopify store can sell a $100 gift card today, receive the cash and ship nothing. Weeks later, a different person might use the same gift card towards a taxable order. That creates two separate events for bookkeeping and the GST/HST timing does not follow the cash in the way a normal product sale does.

For growing Shopify businesses, this distinction matters greatly. If gift cards are posted as ordinary sales when they’re initially purchased, revenue and GST/HST can be distorted. If redemptions of the gift card are not properly accounted for because no new cash reached the bank, actual merchandise sales can be understated.

Also for newer Shopify stores, gift cards that are redeemed can generate Shopify transaction fees that need their own accounting treatment.

This blog aims to discuss how to treat transactions related to gift cards and Shopify transaction fees associated with them. Let’s get started!

What Counts as a Gift Card for Shopify Businesses

What counts as gift cards? According to the CRA, gift cards broadly enough include gift cards as well as gift certificates. Gift cards needs to meet these criteria:

• Needs a monetary exchange value or represent a particular supply
• Be issued or sold for consideration,
• Be accepted as full or partial payment,
• Require no extra action from the holder beyond presenting it as payment
• Have no intrinsic value of its own.

They could be physical or digital. A Shopify digital gift card sold for $50, $100, or $250 would fit this concept. Section 181.2 of the Excise Tax Act treats the sales of gift cards as not being a supply for GST/HST purposes. However, when it is later used, it is treated like money towards the purchase.

Should You Charge GST/HST when a Gift Card is Sold?

Based on the previous section, CRA guidelines state that you should not charge HST or GST when a gift card or gift certificate is sold. This is because the customer is buying purchasing power, not the underlying taxable merchandise at this point.

To illustrate, suppose a Shopify business sells a customer a $100 gift card. In this case, the customer will be charged $100 without any taxes. The tax is only considered when the gift card is used on the purchase of a taxable product or service.

When a gift card is sold the Shopify business records the cash and the value of a gift card goes into a liability account until it is used.

Example: Selling a $100 Gift Card to a customer

If a customer pays $100 for a $100 gift card, the entry will look something like this in Quickbooks or Xero:

Account	Debit	Credit
Shopify Payments / cash clearing	$100
Gift card liability / outstanding gift cards		$100

What Happens When the Customer Redeems all of the Gift Card?

Using the gift card is when the underlying sale and the applicable HST/GST is applied. CRA says that when a customer uses a gift card, the GST/HST is calculated on the price of the taxable item and the gift certificate is deducted as though it were cash.

Let look at an example:

Let’s assume a customer purchased $100 of taxable merchandise in Ontario. HST is $13, so the order total is $113. If the customer applies a $100 gift card and pays the remaining $13 by credit card, the bookkeeping needs to recognize the $100 merchandise sale and the $13 of HST payable. The outstanding gift card balance is reduced by $100. It will look something like this.

Account	Debit	Credit
Gift card liability	$100
Shopify Payments clearing/Cash	$13
Sales revenue		$100
HST payable		$13

Notice that only $13 of new money came in through the payment processor because the other $100 was paid using the value of the gift card. If you reconciled your Shopify solely from bank deposits, you may not see this distinction and it can produce incorrect revenue.

What Happens When a Customer Uses Some of the Gift Card?

The previous example shows what happens when a customer uses their full credit card. However, this is not always going to be the case. Customers do not always spend the full gift card balance all at once. What happens if a customer uses $60 of a $100 gift card? Well, in this case, the bookkeeper should reduce the outstanding gift card balance by $60 and should leave $40 available for later purchases. The remaining amount should not simply disappear just because some of the balance was used.

This also raises an interesting point of tracking individual gift card balances for each customer. At scale, it is important to use a tracker within Shopify to track customers’ gift cards and their usage. This information can then be transferred into your QuickBooks or Xero accounts and reconciled to the reliable Shopify gift card activity. Any differences between the two can later be investigated.

Purchased Gift cards vs Merchant-issued Gift cards

Something to keep in mind is the distinction between gift cards purchased by customers versus gift cards given directly to customers by a Shopify business. Purchased gift cards are cards that have been pre-paid by a customer, while a gift card created by a merchant does not require payment by the customer or the recipient.

This difference is extremely important when doing bookkeeping. If a customer pays $100 for a gift card, the store received $100 of value and that must be accounted for. However, if a merchant creates a $100 gift card as a customer service gesture, a giveaway, or promotion, there is no exchange in cash. Posting both events as $100 of cash sales would be wrong in this case.

Merchant-issued gift cards have a similar entry as purchase gift cards however since cash is not received, so the revenue account is credited. It looks something like this:

Account	Debit	Credit
Gift Card allowance	$100
Gift card liability / outstanding gift cards		$100

Once a merchant-issued gift card is used on the purchase of a product, tax can still arise when it is later used toward taxable goods.

Purchases gift cards and merchant-issued gift cards should be tracked in separate account to ensure they are properly accounted for without confusion. This include when they are issued and used.

Accounting for Shopify Fees on Used Gift Cards

Shopify’s current documentation states that for stores created on or after May 5th, 2025, orders that include gift cards as a payment method are charged third-party transaction fees on the portion paid using the gift card. Shopify states that those gift card transaction fees do not apply to stores created before that date.

For those using Shopify Plus and Shopify Payments as their sole payment provider, these transaction fees are waived. It is important that each Shopify owner verifies the treatment of these rules, rather than assuming every store is charged the same way.

Example: a gift-card redemption creates a Shopify fee

Assume $100 of a customer’s order is paid using a gift card and Shopify charges a $2 transaction fee on that gift-card payment. The $2 should not reduce merchandise revenue but rather should be recorded as an expense.

Here is how it looks:

Account	Debit	Credit
Shopify transaction fee expense	$2
Shopify payable / clearing		$2

Keeping the fees separate and as an expense makes gross margin and selling expenses easier to understand. If fees are simply netted against Shopify sales, the profit-and-loss statement can understate both revenue and payment-platform costs.

What Happens When an Order Paid by Gift Card is Refunded?

Refunds deserve special attention because the accounting should follow what actually happened to the customer’s value. If a purchase is reversed and value is restored to a gift card, the bookkeeper needs to reverse the relevant sale and tax amounts and restore the appropriate outstanding gift-card obligation. If part of the order was paid by another payment method, the refund trail can involve both the gift-card balance and a payment-processor settlement.

Do not assume that every Shopify refund equals cash leaving the bank. Review the refund method and the Shopify transaction detail. A refund that restores prepaid value to a gift card has a different cash impact from a refund sent back to a customer’s Visa or Mastercard.

Watch for Gift Cards when Reconciling Bank Deposits

If you commonly record Shopify income using deposits, you can expose a flaw in how gift cards are recorded. See, cash can arrive when the gift card is sold. Therefore if you record the gift card sale with the deposits as income, you have now overstated your income. And you don’t have a trail of your gift cards.

A better bookkeeping workflow to ensure that gift cards and associated sales are recorded properly is to use Shopify’s order and transaction activity reports. With this, you can record each sale, gift card, sales tax, and any other categories or activities within your Shopify store appropriately. This makes reconciliation easier and allows you to compare the payments coming into the bank from Shopify much easier.

What Should I do When Customers Don’t Use their Shopify Gift Cards?

Let’s say you sold a gift card and months or even years have passed and customers have not used their gift cards. What happens to them?

There are a few ways to address this concern. One way is to have policies regarding the gift card. Most Shopify business owners have expiration dates on their gift cards to let customers know that gift cards expire after a certain period and that the gift card needs to be used before that time. This allows for a cleaner bookkeeping record and allows customers to use gift cards before an allocated time so that you have the opportunity to clear it from the liability account.

In the policy, most Shopify businesses also stipulate that if the gift card is not used after that period, the gift card expires and customers have the option of returning the gift card in exchange for cash or forfeiting the money on the gift card, at which point the sale of the gift card can be recorded as revenue.

The approach you use depends on your preference and there are generally no gold standards for how you implement these policies for your Shopify store.

When a gift card is forfeited after an expiry date, the gift card liability is debited and the appropriate sales revenue is credited. If there was money exchanged for the initial purchase of the gift card and the gift card liability is moves to revenue, sales taxes are inclusive of the amount paid for that gift card. If no money is paid for the gift card, the original entry is reversed and since there was no exchange in cash, there is no entry for sales tax.

How to Reconcile Shopify Gift Cards

1. Start with the opening balance: Confirm the outstanding gift-card balance carried forward from the prior month.
2. Add purchased gift cards: Identify gift cards sold for consideration during the month. Separate these from cards created by the merchant without customer payment.
3. Review redemptions: Determine how much gift-card value customers used on orders and confirm that the related merchandise sales and GST/HST were recorded.
4. Review refunds and restorations: Identify refunds that returned value to gift cards so the outstanding balance is not understated.
5. Review manual adjustments: Investigate cancellations, disabled cards, promotional cards and other admin changes that affect the Shopify balance.
6. Reconcile Shopify fees: Tie any applicable gift-card transaction fees to Shopify billing and record them separately from sales.
7. Tie the ending balance: The general-ledger gift-card balance should be explainable by the Shopify activity supporting the month-end total.
8. Review expired gift cards: If there are gift cards that are expired, clear them from your liability account according to your policy.

Common Mistakes Shopify Owners Make With Gift Cards

• Charging GST/HST when a qualifying gift card is sold instead of when it is redeemed for a taxable purchase.
• Posting every gift-card sale directly to merchandise revenue without considering the operational liability tracking and year-end income-tax treatment.
• Ignoring gift-card redemptions because no equivalent cash deposit appears in the bank.
• Treating merchant-issued promotional gift cards exactly like customer-purchased gift cards.
• Failing to restore the gift-card balance when an eligible refund is returned to the card.
• Netting Shopify gift-card transaction fees against sales instead of recording the fees separately.
• Allowing the gift-card general-ledger balance to roll forward for months without reconciling it to Shopify.

What records should a Shopify merchant keep?

Keep Shopify gift-card activity, order-level redemption data, refund records, Shopify billing statements, payment-processor settlement reports and month-end reconciliations. If gift cards are manually created, document why they were issued. If the store operates in multiple currencies or markets, retain enough transaction detail to explain the currency and tax treatment applied to the underlying order.

For higher-volume stores, the goal is not to manually inspect every card. The goal is to build a repeatable control: Shopify maintains the detailed gift-card records, the accounting system maintains the summarized financial balance, and the two are reconciled regularly.

Conclusion on Accounting for Shopify Gift Cards

For Canadian Shopify stores, gift cards should not be treated as ordinary product sales from beginning to end. The card sale, the redemption, the GST/HST on the underlying purchase, any refund back to the card, and Shopify’s applicable transaction fee are separate events.

A clean bookkeeping system should be able to answer five questions at any month-end: How much gift-card value was sold? How much was redeemed? Were any restored or adjusted? How much remains outstanding? And do the related Shopify fees, sales and GST/HST reconcile to the underlying transactions? If those answers are unclear, the gift-card workflow is worth reviewing before the problem compounds across another year of Shopify sales.

Sources and further reading

• Canada Revenue Agency — GST/HST Policy Statement P-202, Gift Certificates
  https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p-202/gift-certificates.html
• Canada Revenue Agency — GST/HST in special cases: Gift certificates
  https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-special-cases.html
• Canada Revenue Agency — Sources of income: gift cards or certificates
  https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/business-income-tax-reporting/business-income/sources-income.html
• Shopify Help Center — Gift cards considerations and overview
  https://help.shopify.com/en/manual/products/gift-card-products/overview
• Shopify Help Center — Third-party transaction fees on Shopify bills
  https://help.shopify.com/en/manual/your-account/manage-billing/billing-charges/types-of-charges/third-party-charges/third-party-transaction-fees