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XXXXX 11690-9(rs)
Section 153
JULY 5, 1996
Dear XXXXX
This is in reply to your e-mail of May 16, 1996 in which you requested information with respect to the proposed amendment to section 153 of the Excise Tax Act (the "ETA"). The Ways and Means Motion tabled on April 23, 1996 proposes the addition of new subsection 153(4) to the ETA that provides for the use of the "trade-in approach" in certain circumstances.
You have requested clarification of the proposed amendment with respect to the following scenarios.
Question 1:
Proposed subsection 153(4) of the ETA reads in part,
"... the supplier accepts, in full or partial consideration for the supply, other property (in this subsection referred to as the "trade-in") ...".
Does this mean that the value of the consideration for the trade-in cannot exceed the value of the consideration for the supply of tangible personal property made by the supplier in order for proposed subsection 153(4) of the ETA to apply?
Response:
Proposed subsection 153(4) of the ETA provides rules in respect of calculating the value of the consideration for a supply of tangible personal property made by a supplier. The proposed subsection reduces the value of the consideration for such a supply (where all the other conditions of the subsection have been). The amount of the reduction is equal to the value of the consideration for the trade-in. The value of the consideration for the supply of tangible personal property made by the supplier can be reduced to, at least, nil. This will occur where the value of the consideration for the trade-in is equal to, or greater than, the value of the consideration for the supply of tangible personal property made by the supplier. In other words, proposed subsection 153(4) of the ETA applies in situations where the value of the consideration for the trade-in exceeds the value of the consideration for the supply of tangible personal property made by the supplier, assuming all the other conditions of the subsection have been met.
Question 2:
A registered used bookstore sells a book to a non-registrant individual for consideration of $5.00. As payment, the bookstore accepts the individual's used book. The consideration assigned to the individual's traded in book is $15.00. What are the tax consequences?
Response:
Proposed subsection 153(4) of the ETA applies to the supply of the book made by the bookstore. As a result, the consideration for the supply made by the bookstore is reduced from $5.00 to nil. The GST payable by the individual is $0.00. The bookstore owes the individual $10.00 ($15.00 - $5.00).
Question 3:
A non-registrant individual makes a supply of a used book to a used bookstore. The consideration assigned to the book is $10.00. The bookstore issues a "coupon" valued at $10.00 entitling a person to purchase books from the bookstore at a later date. The "coupon" cannot be converted to cash. One month later the individual purchases a book from the bookstore for consideration of $15.00 and remits the "coupon" as partial payment. What are the tax consequences?
Response:
Pursuant to proposed subsection 153(4) of the ETA, a supplier is required to make a supply of tangible personal property at the time that he accepts a trade-in in full or partial consideration for that particular supply (of tangible personal property). That condition has not been met in the above scenario. The supply of the "coupon" is not a supply of tangible personal property therefore proposed subsection 153(4) of the ETA does not apply. When the individual returns one month later to purchase a book and redeems the "coupon", the GST payable by the individual would be $1.05 ($15.00 x 7%). The individual owes the bookstore $6.05 ($16.05 - $10.00). Please note that it seems more appropriate, given the limited facts presented, to classify the "coupon" referred to in the question as a "gift certificate". Accordingly, the rules with respect to gift certificates pursuant to section 181.2 of the ETA apply to the issuance and acceptance of the gift certificate in the response provided.
Question 4:
A non-registrant individual makes a supply of a used book to a used bookstore. The consideration assigned to the book is $10.00. The bookstore issues a "coupon" valued at $10.00 entitling a person to either purchase books from the bookstore or for cash. One month later the individual purchases a book from the bookstore for consideration of $5.00 and remits the "coupon" as payment. What are the tax consequences?
Response:
Proposed subsection 153(4) of the ETA does not apply as the supplier has not made a supply of tangible personal property at the time that he accepts a trade-in in full or partial consideration for that particular supply. When the individual returns one month later to purchase a book and redeems the "coupon", the GST payable by the individual would be $0.35 ($5.00 x 7%). The bookstore owes the individual $4.65 ($10.00 - $5.35). Please note that it seems more appropriate, given the limited facts presented, to classify the "coupon" referred to in the question as a "gift certificate". Accordingly, the rules with respect to gift certificates pursuant to section 181.2 of the ETA apply to the issuance and acceptance of the gift certificate in the response provided.
If you require further information, please contact Mike Matthews, Manager, Industries Unit at (613) 952-8806.
Yours truly,
H.L. Jones
Director
General Operations and Border Issues Division
GST Rulings and Interpretations Directorate
GAD #: 1736 (GEN)
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M. Matthews
P. Lafond
R. Smith
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