Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 155259
November 22, 2013
Dear [Client]:
Subject: GST/HST INTERPRETATION
Advance payments for the redemption of reimbursable coupons
Thank you for your fax of July 11, 2013, concerning the eligibility of [...]- (the Company) to claim input tax credits (ITCs) in respect of certain coupon redemptions.
The Harmonized Sales Tax (HST) applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The Goods and Services Tax (GST) applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that the Company, a GST/HST registrant, issues fixed dollar (i.e., "$10 off") coupons in the course of its commercial activities. The coupons may be applied against purchases of qualifying products sold by participating retailers. They entitle the coupon holders to a $10.00 reduction of the price of the qualifying products.
When a participating retailer accepts a coupon as full or partial payment for a taxable sale, the value of the coupon is applied against the full value of the sale including the applicable GST/HST. In other words, the retailer charges the GST/HST on the sale price before deducting the value of the coupon. We will assume for the purpose of our response that none of the sales are zero-rated.
At the end of each month, the Company redeems the coupons from the participating retailers and reimburses them in the course of its commercial activity for the full value of the coupons. The Company then claims an ITC in accordance with subsection 181(5).
The Company would like to change the payment arrangement to alleviate the cash flow burden borne by the participating retailers for accepting the coupons. Under the new arrangement, the Company will issue an advance to each retailer at the beginning of each month based on the value of the monthly average number of coupons accepted by the retailer. At the end of the month, the Company will reconcile the amount of the advance with the value of the coupons actually redeemed by the Company from the retailer during the month.
If the value of the coupons actually redeemed by the Company from the retailer is more than the amount of the advance, the Company will issue a payment to the retailer for the difference. If the value of the coupons actually redeemed is less than the amount of the advance, the Company will carry forward the balance owing to the next month's reconciliation. The Company will then claim an ITC under subsection 181(5) based on the value of the coupons actually redeemed by the Company from the retailer for the month.
Interpretation Requested
You would like to know if the new payment arrangement will impact the Company's ITC entitlement under subsection 181(5).
Interpretation Given
Vendors often accept coupons issued by third parties as full or partial payment for supplies of property or services. Where a person (e.g., a coupon issuer) later redeems the coupons from the vendor and pays an amount to the vendor in respect of the redemption, subsection 181(5) may apply. Where subsection 181(5) applies, the payment of the amount is deemed not to be consideration for a supply, the payment and receipt of the amount is deemed not to be a financial service, and the person who redeems the coupons from the vendor may be eligible for an ITC.
Subsection 181(5) will apply where:
* The vendor who accepts the coupons is a GST/HST registrant.
* The vendor accepts the coupon as full or partial consideration for a taxable supply of a property or a service.
* The coupon holders can exchange the coupons for the property or service, or the coupons entitle the coupon holder to a reduction of, or a discount on, the price of the property or service.
* A person pays, in the course of their commercial activity of the person, an amount to the vendor for the redemption of the coupons.
To be eligible for an ITC under subsection 181(5), the person who paid an amount to the vendor for the redemption of the coupons must meet the following requirements:
* The person must be a GST/HST registrant other than a registrant who is a prescribed registrant for the purposes of subsection 188(5) (e.g., provincial lottery corporations).
* The supply of the property or service must have been fully taxable and not zero-rated.
* The coupon must have entitled the coupon holder to a reduction of the price of the property or service equal to a fixed dollar amount specified in the coupon (i.e., the "coupon value").
* No part of the coupon value can be an amount of an adjustment, refund or credit to which subsection 232(3) applies.
If the person pays an amount for the redemption of the coupons to the vendor in advance, and if the amount of the advance is later reconciled with the value of the coupons actually redeemed by the person from the vendor, then, assuming that all of the requirements necessary for subsection 181(5) to apply have been met, the advance would not be consideration for a supply, and the payment and receipt of the advance would not be a financial service.
Furthermore, assuming that all of the additional requirements for the person to be eligible for an ITC under subsection 181(5) have also been met, the person may claim an ITC when the advance is reconciled with the value of the coupons actually redeemed.
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 905-721-5203. 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,
Jill McDonald, CPA, CA
Specialty Tax - General Unit
Financial Institutions and Real Property Division
Legislation Policy and Regulatory Affairs Branch Division
Excise and GST/HST Rulings Directorate
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