Gift cards are excellent for retail cashflow: you receive money now for goods delivered later, and a predictable share is never redeemed at all. They also carry consumer law, accounting and unclaimed money implications that most small retailers have never examined.
Expiry dates and the Fair Trading Act
New Zealand does not currently mandate a minimum expiry period for gift cards, unlike some overseas jurisdictions. Retailers can set expiry terms.
What the law does require is that the terms are clearly disclosed before purchase and not misleading. A short expiry buried in terms the purchaser never sees, or an expiry that is not visible on the card itself, creates real Fair Trading Act exposure. So does a term that effectively renders the card worthless in a way a reasonable consumer would not expect.
Practical minimum standards: state the expiry on the card, state it at point of sale, and make the balance checkable. If you sell online, the terms need to be presented before the transaction completes, not emailed afterwards.
Consumer guarantees still apply
Goods bought with a gift card carry the same Consumer Guarantees Act rights as goods bought with cash. Where a customer is entitled to a refund for a substantial failure, the fact that the original payment was a gift card does not reduce the entitlement, though a refund back to a card or as store credit is often the practical outcome by agreement.
You also cannot use gift card terms to exclude consumer guarantees, and a term purporting to do so is unenforceable and misleading.
What happens if the business fails
This is the part customers do not expect. Gift card holders are generally unsecured creditors in an insolvency, ranking behind secured creditors and preferential claims. In most retail liquidations, gift card holders recover little or nothing.
That is a legal reality rather than a policy position, but it has a practical implication for retailers: gift card liabilities are real liabilities. A business selling a large volume of cards is holding customer money against future delivery, and treating that cash as freely available working capital is how the problem compounds.
Accounting treatment
A gift card sale is not revenue at the point of sale. It creates a liability — a contract liability for goods to be delivered — and becomes revenue when redeemed or when it can reliably be recognised as breakage.
GST timing follows its own rules, so the treatment of the GST on a voucher is worth confirming with your accountant rather than assuming it follows the accounting entry.
Breakage — the portion never redeemed — can be recognised as revenue, but the basis needs to be reasonable and supportable, typically using historical redemption patterns. Recognising the whole balance the day a card expires is aggressive and, for larger retailers, likely to be questioned.
Unclaimed money
New Zealand has an unclaimed money regime under which certain money held for another person, unclaimed for a defined period, must be paid to Inland Revenue and can later be claimed by the owner.
Whether a particular expired gift card balance falls within that regime depends on the nature of the arrangement and the terms, and the answer is not uniform across all voucher types. Retailers holding material balances of expired or dormant card value should get specific advice rather than defaulting to writing it to income.
Practical guidance
- Disclose terms clearly, on the card and at the point of sale, in both physical and online channels.
- Track the liability in your accounts rather than treating card sales as revenue. You need to know what you owe.
- Keep a redemption register with issue date, value, expiry and balance, so you can answer a customer query and support your breakage estimate.
- Honour cards generously at the margin. A recently expired card redeemed as a goodwill gesture costs you gross margin, not cash, and avoids a complaint that costs more.
- Get advice on expired balances before writing them off, particularly if the amounts are significant.
- Be careful with promotional vouchers. A voucher given away, rather than sold, is a different instrument, and conflating the two in your terms creates confusion.
The Commerce Commission publishes Fair Trading Act guidance covering gift card disclosure at comcom.govt.nz, and Inland Revenue publishes material on unclaimed money and on GST treatment of vouchers at ird.govt.nz.
General information only, not legal or accounting advice.
