Nestlé Canada – Tax Court of Canada finds that the mere posting and honouring by Costco of dollar-amount discounts for which it was reimbursed by Nestlé Canada did not come within the GST/HST coupon rules

Nestlé Canada promoted the sale of various of its products at Costco warehouses by having Costco agree to post signs on the shelves indicating per each product item a discount of a fixed dollar amount per item, and then reimbursing Costco for the full amount of all discounts applied to customer purchases at the Costco warehouses. Lamarre ACJ found that these discounts did not qualify as “coupons” as defined in ETA s. 181 because “the customer did not tender any coupon (physical or electronic) to the cashier” but instead simply received a discount. The arrangement instead was characterized by her as the provision of a promotional allowance.

The effect of this finding (as noted by her) was that CRA received a windfall, as the Costco customers had paid GST/HST on the full pre-discount price of the goods, and Nestlé Canada was not entitled to input tax credits for the applicable fraction of the discount amounts (unlike what would have been the case if they had qualified as “coupons.”)

Neal Armstrong. Summaries of Nestlé Canada Inc. v. The Queen, 2017 TCC 33 under ETA s. 181(1) – coupon and s. 231.2.