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: 97525
Business Number: XXXXX
Attention: XXXXX
June 22, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Gift certificates
Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of gift certificates and input tax credits. We apologize for the delay in providing this 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.
We understand that a corporation is a GST registrant. The corporation will sell gift certificates redeemable at local restaurants as described in two scenarios below. No agreements were available for our review.
Scenario 1
The corporation purchases gift certificates for 80% of the redemption value of the gift certificate from Company A for resale (i.e. re-supply). The corporation re-supplies the purchased gift certificates for 90% of the redemption value of the gift certificate; the corporation retains 10% of the redemption value of the gift certificate. Unsold gift certificates may be returned to Company A for a refund.
Scenario 2
The corporation acts as a sales agent selling gift certificates on behalf of Company B. The gift certificates are sold by the corporation for 90% of the redemption value of the gift certificate. The corporation then remits 80% of the redemption value of the sold gift certificates to Company B, retaining 10% of the redemption value of the gift certificates as payment for its services. At all times the gift certificates are owned by Company B until sold to another person. Unsold gift certificates may be returned to Company B.
Interpretation Requested
You would like to know the proper GST/HST treatment of the transactions in each scenario.
Interpretation Given
Based on the information provided, we provide the following interpretations under each scenario.
Scenario 1
The purchase of a gift certificate by the corporation for 80% of the redemption value of the gift certificate from Company A would be deemed not to be a supply and GST/HST would not apply. The re-supply (i.e. the sale) of the gift certificate by the corporation to another person for 90% of the redemption value of the gift certificate would be deemed not to be a supply and GST/HST would not apply. The amount of 10% of the redemption value of the gift certificate retained by the corporation would be part of the corporation's gross profit and not consideration for any supply; accordingly, the amount retained would not be subject to GST/HST. Unsold gift certificates re-supplied by the corporation back to Company A would be deemed not to be a supply and GST/HST would not apply.
Scenario 2
Where the corporation acts as a sales agent selling a gift certificate on behalf of Company B, the supply (i.e. the sale) of the gift certificate for 90% of the redemption value of the gift certificate to another person would be deemed not to be a supply and GST/HST would not apply. Whether the supply of the gift certificate to another person is considered a supply by Company B or the corporation depends on the circumstances-i.e. whether or not there is an agency arrangement.
Agency (supply considered made by Company B)
Where the corporation is an agent at law of Company B (i.e. the principal), the supply of the gift certificate to another person would be considered to be made by Company B and not by the corporation (i.e. the agent). The remittance by the corporation of 80% of the redemption value of the gift certificate to Company B would be an exempt financial service between Company B and the corporation and GST/HST would not apply to the remittance. However, the amount of 10% of the redemption value of the gift certificate retained by the corporation would be viewed as consideration for a taxable supply provided to Company B of distributing Company B's gift certificate; the amount retained would be consideration for the taxable supply provided by the corporation to Company B and subject to GST/HST as applicable. Unsold gift certificates returned by the corporation to Company B would have no GST/HST consequences.
Consignment arrangement (supply considered made by the corporation)
Where the arrangement is one of consignment, the corporation would be considered to have made the re-supply of the gift certificate to another person (and Company B would be considered to have made a supply to the corporation immediately before); and, as in Scenario 1, each supply would be deemed not to be a supply. GST/HST would not apply to the 80% of the redemption value of the gift certificate remitted by the corporation to Company B; the amount of 10% of the redemption value of the gift certificate retained by the corporation would be part of the corporation's gross profit and not consideration for any supply; accordingly, the amount retained would not be subject to GST/HST. There would be no GST/HST consequences for unsold gift certificates acquired on consignment by the corporation and returned to Company B.
Explanation
Section 181.2 provides for the treatment of gift certificates and, in part, reads:
...the issuance or sale of a gift certificate for consideration shall be deemed not to be a supply and, when given as consideration for a supply of property or a service, the gift certificate shall be deemed to be money.
The term "gift certificate" is not defined in the ETA. Generally, the Canada Revenue Agency considers the following criteria in determining whether a particular device is a gift certificate. A gift certificate is a device (e.g. voucher, receipt, ticket)
1. that usually has a stated value,
2. that can be redeemed on the purchase of property or a service from a particular supplier; i.e. the supplier agrees to accept the device as consideration, or a part thereof, towards the purchase of property or a service,
3. for which consideration was given, and
4. has no intrinsic value.
When a gift certificate is sold, the GST/HST is not charged on the sale of the gift certificate pursuant to section 181.2. Instead, the GST/HST becomes payable, as applicable, on the supply of property or services acquired when the gift certificate is redeemed. When the gift certificate is redeemed, it is deemed to be money that is used as full or partial payment towards the purchase of the property or services.
The fact that a gift certificate is sold at a discount does not change the characterization of the device as a gift certificate for purpose of 181.2. As long as the gift certificate is issued or sold for consideration, the sale of the gift certificate at a discount does not attract the GST/HST.
Gift cards
A gift card may be treated as a gift certificate for GST/HST purposes where all of the conditions of a gift certificate outlined above are met.
Input tax credits (ITCs) in respect of gift certificates
Although, section 181.2 deems the sale of the gift certificate not to be a supply for GST/HST purposes, a person who makes that supply is still considered to be engaged in a commercial activity. Therefore, the corporation is entitled, if registered for GST/HST purposes, to claim as ITCs the GST/HST paid on its expenses related to this commercial activity provided all of the requirements under section 169 for claiming ITCs are met.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8811. 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
UNCLASSIFIED
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