CIBC – Federal Court of Appeal finds that fees paid by CIBC to Aeroplan were for promotional services, but was not averse to viewing Aeroplan Miles as gift certificates
The appellant (CIBC) was charged by Aeroplan for the number of Aeroplan Miles that were credited to the cards of CIBC cardholders. CIBC argued that these fees were (1) consideration for intangible personal property (the Miles) that were supplied by Aeroplan, and (2) that such property was exempted from GST as being a supply of “gift certificates.”
Webb JA rejected the first argument in light of the terms of the agreement between CIBC and Aeroplan, which he found essentially labelled the fees as being for promotional and marketing services. He stated:
The issuance of Aeroplan Miles to CIBC’s customers cannot be elevated to be the predominant supply when such issuance of Aeroplan Miles is not even mentioned in the referral activities for which the consideration was payable. …
The legal relationship between CIBC and Aeroplan is defined by the agreement between these two parties. There is nothing to suggest that this agreement is not a bona fide agreement. …
Given this finding, it was unnecessary for him to address the gift certificate argument, but he nonetheless stated that he should not in any way be considered to be endorsing the Tax Court’s views that the Miles were not gift certificates.
In his dissenting reasons, Stratas JA referred approvingly to the argument in Osler’s memorandum that "'[t]he parties cannot, by a contractual provision, bind each other or the Minister to a particular determination of the predominant element of a single composite supply for GST purposes’," and then stated:
My colleague focuses on literal contractual language and exclusively so. … Now that my colleague’s approach is law, I fear that in the future parties will add words not to change their contractual obligations or the practical, commercial substance of the supply but merely to trigger favourable GST treatment. This may be a boon for cunning drafters and their bag of tricks. …
[T]he element that gives the supply commercial efficacy—the predominant element of the supply—is the right to allocate Miles. But for the right to allocate Miles, there would have been no point in the parties performing their other obligations.
Stratas JA went on to indicate that the Miles acquired by CIBC were deemed under the gift certificate rule (ETA s. 181.2) not to be a supply, so that the fees were not subject to GST, stating:
In the commercial world, Miles function as gift certificates. … They are an exchange device because they may be used as consideration for property or services in the same way as money or a gift certificate.