Finance Minister Jim Flaherty announced the impending withdrawal of the penny in last March's budget, saying the government would save $11 million a year in production costs.
That's because production of each one-cent coin had cost the Royal Canadian Mint about 1.6 cents.
But a new analysis of costs shows that redeeming the mountain of circulating pennies beginning Feb. 4 will cost taxpayers about $7.3 million a year.
The analysis projects a net cost of about $38.3 million to redeem some six billion pennies expected to be turned in by consumers and financial institutions over the next six years.
(STORY CONTINUES BELOW SLIDESHOW)
Costs include $53 million expected to be paid out to redeem the face value of the coins, as well as another $27 million in handling and administration costs by the Royal Canadian Mint.
Recycling the zinc and copper from melted-down pennies will bring in about $42.5 million in revenue, leaving government in the red at just over $38 million.
However, adding the $11 million in annual savings from not minting any more pennies, which ceased production May 4 this year, still gives the government annual savings of almost $4 million over the expected six-year redemption period.
The Finance Department posted a cost-benefit analysis Wednesday.
As required under government policy, the department was also required to consider non-regulatory measures for the return of pennies.
"A non-regulatory alternative option would include refusing to pay for the returned pennies," says the notice.
"This option has been rejected because, without a government commitment to cover the redemption costs, Canadians might lose confidence in the value of the penny, and other circulating currency.
"This could threaten the integrity of the coinage system as the intrinsic value of Canadian currency is based on a high level of confidence in the currency system."
A cabinet order earlier this month conferred on Flaherty the authority to pay financial institutions for the pennies they'll begin to redeem starting Feb. 4. However, they're not being compensated for handling costs, only the face value of the coins.
The mint has stamped an estimated 35 billion pennies from metal plates over the last century.
The penny remains legal tender even after Feb. 4.
As the coins are withdrawn, cash transactions will begin to be rounded off to the nearest five cents, but there are no government-imposed rules or policing.
Electronic transactions, such as those on debit cards or credit cards, would still be registered in cents.
Pennies were to have been withdrawn from circulation starting this fall but retailers successfully stalled the plan, saying they wanted to keep the coins for the holiday shopping season.