CRA notes that a distributor/marketer separation may deprive them of access to the promotional allowance HST/GST rule

Where a registrant pays or credits an allowance to another registrant (e.g., a retailer) in order to promote sales by the retailer of its product, the allowance generally will be treated for HST/GST purposes equivalently to the payment of a tax-included rebate, that effectively reduces the net remittance obligations of the payor of the allowance and the input tax credits of the retailer.

CRA has indicated that a separation of roles between a distributor (who supplies the property being promoted) and a marketer (who makes the promotional agreements and payments) within a related group will prevent this rule from applying, as it requires that the registrant providing the promotional allowance also have sold the property being promoted.  An agreement that the marketer provide the allowance as agent of the distributor would be necessary.

Scott Armstrong.  Summary of 27 July 2012 Interpretation Case No. 126511 under ETA s. 232.1.