Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 84050
Business Number: XXXXX
Attention: XXXXX
June 29, 2010
Dear XXXXX:
Subject:
GST/HST RULING
Gift cards supplied at no charge
Thank you for your letter of XXXXX, sent to the XXXXX Tax Services Office concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain transactions involving gift cards supplied to customers for no consideration. We apologize for the delay in providing our response.
HST currently applies at the rate of 13% in Nova Scotia, New Brunswick, and Newfoundland and Labrador. Effective July 1, 2010, HST will apply at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, and 12% in British Columbia. GST will continue to apply at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
1. XXXXX (the "Retailer"), a GST/HST registrant, is a XXXXX retailer operating stores across Canada.
2. The Retailer, among other things, supplies gift cards, namely XXXXX, to its customers generally for consideration, although some are supplied for no consideration to certain customers for various reasons; for example, XXXXX.
3. The Retailer keeps a record of the number of gift cards that are provided to customers for no consideration, but cannot trace the redemption/use of any gift card to determine whether the gift card was sold for consideration or given free of charge. Gift cards that are provided to customers for no consideration represent less than XXXXX% of all gift cards issued or given free of charge.
4. Each gift card is issued for a known fixed dollar amount. No amount is actually printed on the card itself, but the amount is uploaded electronically on the card. To determine an unknown balance on the card, a customer can call a toll-free number on the back of the card.
5. The cards cannot be redeemed for cash, unless required by law. On the back of each card is the following information:
XXXXX
6. The card is to be presented by the bearer at the checkout as partial or full consideration for a supply of taxable (including any zero-rated) or exempt goods or services. The Retailer calculates the applicable GST/HST payable based on the full price of the taxable goods or services supplied to the bearer of the card, as if the gift card were cash.
Ruling Requested
1. Is a gift card supplied for no consideration, as described in the facts above, a coupon for purposes of section 181, specifically a non-reimbursable coupon under subsection 181(3)?
2. If the gift card supplied for no consideration, as described in the facts above, qualifies as a non-reimbursable coupon under subsection 181(3), would paragraph 181(3)(b) apply? If paragraph 181(3)(b) applies, would the Canada Revenue Agency ("CRA") accept a calculation of the input tax credit ("ITC") based on a prorated formula because of the difficulty in linking actual taxable, zero-rated and exempt sales to a particular card redemption?
Ruling Given
Based on the facts set out above, we rule that
1. A gift card supplied for no consideration, as described in the facts above, is considered money supplied on account for which no supply has yet been made and, accordingly, is not subject to GST/HST at the time of supply; it is neither a coupon for purposes of section 181, nor a gift certificate for purposes of section 181.2.
2. In light of the above ruling, subsection 181(3) does not apply and therefore no ITC pro-rated or otherwise is available with respect to a gift card supplied for no consideration, as described in the facts above.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
A coupon is a "device" or voucher that generally has a single use, the value of the voucher cannot be changed and it is exchanged for a supply of property or a service or reduces the value of the consideration for the supply of property or a service. A gift card must have the characteristics of a gift certificate as described in GST/HST Policy Statement P-202, Gift Certificates, to be considered a gift certificate within section 181.2; in other words, for a gift card to be considered a gift certificate, the gift card must have a value; be redeemable for the purchase of property or a service; consideration must have been given; be transferable, and have no intrinsic value.
However, a gift card supplied for no consideration as described in the above facts issued as a "gift card" in the same manner as a gift card supplied for consideration does not meet the characteristics of a coupon or a gift certificate for GST/HST purposes. In this particular case, the bearer may increase the card's value by making a cash payment to the issuer and having the balance on the card increase. Therefore, the gift cards supplied for no consideration as described in the above facts are not coupons for purposes of section 181. Further, no consideration has been given for the voucher, so the criterion of a gift certificate of consideration being given is not met and, therefore, a gift card supplied for no consideration as described in the above facts is not a gift certificate within section 181.2.
A gift card issued for no consideration as described in the above facts is considered money supplied on account for which no supply has yet been made and, accordingly, is not subject to GST/HST at the time of supply.
Subsequently, when the free gift card is used by the bearer as full or partial payment towards the consideration for a supply to the bearer, the payment or receipt of the value of the gift card towards that consideration is treated in the same manner as the payment of money as consideration for the supply.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8811 or Ken Syer, Manager, at 613-952-9219. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
William Parker
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
XXXXX
XXXXX
UNCLASSIFIED
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