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: 141120
Business Number: […]
October 22, 2012
Dear [Client]:
Subject GST/HST RULING
ITC entitlement on the value of a discount coupon
Thank you for your fax of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a discount coupon. We apologize for the delay in our response.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Our understanding of the facts as obtained from our telephone conversations, information from the […] [ACo] website, and your submissions which included a sample invoice, sample coupons, privacy statement, […] [Vendor] agreement and cover page is as follows:
1. [ACo] is registered for GST/HST purposes with Business Number […].
2. [ACo] operates an online marketing service to the [Vendor] industry which includes website creation and hosting. As a component of this service, [ACo] provides a Web site where a customer may place an order for [the products and services] from a […] [Vendor]. The order is then processed through the online service. [ACo] collects the funds and the [Vendor] delivers [the products and services]. [ACo] then remits the funds to the [Vendor], less certain fees.
3. The [ACo] web site allows a customer to sign-up to receive discounts through different discount programs offered by [ACo] on [the products and services] orders made via its web site. The customer must sign-up to receive […] e-mails and/or by joining the [ACo] newsletter. These are the means for issuing discounts to consumers.
4. […] [Discount X] allow[s] a customer a specific percentage (up to 50%) off on a specific [product and service]. As your question concerns the [Discount X] program, the remainder will be confined to information relevant to this program.
5. [ACo] uses the e-mails and newsletter described in Fact 3 to market the [Vendor] […] [products and services] to consumers by providing the [Discount X] to customers via e-mail. This may be a promotion for a […]% - […]% discount in instances where a customer purchases [products and services] […] [during a] specified period of time, or it may expire after a limit of […]. To obtain a specific discount on [products and services], the customer must […].
6. The instructions for using [Discount X], as per the [ACo] Web site, state […]
7. When this discount is given, [ACo] applies the applicable percentage discount to the total order charged to the customer and collects the remaining funds after the discount is applied from the customer. The HST is charged on the [products and services] total and collected by [ACo] from the customer before the discount is applied.
8. To illustrate the tax treatment, the submission included a sample […] invoice for order [#1]. On this invoice, the [products and services] total charged to the customer is $26.46 plus a $3.00 […] [gratuity] for the before tax order total of $29.46. Collected from the customer is $14.73 (50% of the before tax order total) plus $3.44 HST (13% × $26.46). For this transaction, [ACo] will remit to the [Vendor] $32.90 ($29.46 + $3.44), hence, not taking the 50% discount into consideration - less the agreed Order Fee (e.g., depending on the Plan - […]%, […]% or […]% of $29.46).
9. Additional details are contained in the “Privacy Policy/Terms & Conditions” on the [ACo] Web site:
* […] [ACo] provides a way for a customer to communicate their orders to […] [Vendors] […].
* […] once a customer has selected their order […], the customer verifies the order […].
* […] on receipt of the customer’s order, [ACo] will begin processing the order and will send the customer notification by e-mail that payment has been received and that the order is being processed.
* […] prices will be as quoted on the Web site. […].
* […]. [ACo] is not able to provide refunds […].
* […].
* […] the legal contract for the supply and purchase of [products and services] is between the customer and the […] [Vendors] that the order is placed with, and not with [ACo].
10. Your submission also included two sample[s] [of] [Discount X] issued via email:
Coupon 1
[…]
Coupon 2
[…]
11. The [Vendor] Agreement, which is comprised of […], is the formal agreement between [ACo] and the [Vendor]. […].
12. The services offered by [ACo] […] are generally as follows:
* Online Ordering - Offer online ordering and payments including debit via [ACo]; […]. Benefit from advertisements on […].
* Customer Reviews - […].
* […].
* Listings with Partner Websites.
* […].
* […].
* Website Integration […] .
* Website Creation […] .
13. The […] [options] from which a [Vendor] may select to obtain [ACo] Product & Services […]:
* […] [Option #1] $[…] [Joining]Fee, $[…] […] [Equipment] Deposit, […]% [fee] per order (+ applicable taxes)
* […] [Option #2] $[…] [Joining] Fee, $[…] […] [Equipment] Deposit, […]% [fee] per order (+ applicable taxes)
* […] [Option #3] $[…] [Joining] Fee, $[…] […][Equipment] Deposit, […]% [fee] per order (+ applicable taxes)
[…]
14. The Terms & Conditions of the [Vendor] Agreement generally provides the following information:
* […] [ACo] and the specific [Vendor] […] agree to provide their respective services […].
* […].
* […] the [Vendor] shall provide a receipt to the customer for the order, if requested.
* […], the [Vendor] agrees that the […] prices it provides for display on the Web site shall be the same as the […] prices used in its […][physical locations]
* […], the [Vendor] is solely responsible for self-assessing, claiming and remitting all its applicable taxes.
* […] requires the [Vendor] to pay [ACo] […] (the “Order Fee”) […]. […], the Order Fee will be […]%, […]% or […]% per order, […].
* […] [ACo] […] may charge […] (the “Processing Fee”) for Orders which are paid by credit card and/or debit card via the Web site. […] The [Vendor] acknowledges and agrees that the Processing Fee is collected solely for the benefit of [ACo].
* […] [ACo] will pay the [Vendor] the total amount for all orders paid by credit or debit card via the Web site after deducting all amounts due [ACo] for any applicable Order Fees.
* […] [Describes billing practices]
15. The [Vendor] Agreement did not contain any mention of [Discount X]. The discount coupons are offered by [ACo] to promote their online service to customers. The [Vendors] receive the entire order total including HST (less the agreed Order Fee), as specified in the [Vendor] Agreement. The calculation of the Order Fee is based on the before tax order total.
RULING REQUESTED
You would like to know if the discount coupon redeemed by the customer on order [#1] is considered to be a reimbursable coupon for which [ACo] is entitled to claim an input tax credit (ITC) for the amount of the GST/HST that may be included in the value of the coupon.
RULING GIVEN
Based on the facts set out above, [ACo] is not entitled to claim an ITC on the tax fraction of the value of the discount coupon redeemed by the customer on order [#1].
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
Section 181 describes the tax treatment of three types of coupons; reimbursable, non-reimbursable and other coupons. Section 181 generally applies where a registrant accepts in full or partial consideration for a taxable (excluding zero-rated) supply of property or service, certain coupons that entitle the recipient of the supply to a reduction of the price of the supply. Further, subsection 181(5) generally provides that when an issuer of a discount coupon pays a vendor for the redemption of the coupon, the issuer is entitled to claim an ITC in the case of a fixed dollar value coupon. Section 181 does not apply to the discount coupon presented by the customer as it is not accepted by [ACo] in full or partial consideration for a supply it provides to the customer. Although you state that the discount coupons are reimbursable coupons, this is not the case as [ACo] is not paid an amount by another person for that other person’s redemption of the coupon.
ADDITIONAL INFORMATION
The facts above state that [ACo] is engaged in a variety of activities under the [Vendor] Agreement to promote its services. If the supply of these activities by [ACo] constitutes a taxable supply, [ACo] as a registrant, would be required to charge, collect and remit HST on amounts retained as consideration for the supply of its services (e.g., Order Fees and Processing Fees).
In addition, the sample invoice provided for our review indicates that the customer has an option to add an amount as a […] [gratuity]. […]. Although this invoice is not a customer invoice, we wish to draw your attention to the fact that when a business that is registered for GST/HST includes a gratuity as part of the charge for a taxable supply, whether it is a mandatory or a suggested amount, GST/HST will be calculated on the total amount including the gratuity.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (902) 426-6940. 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,
Nancy Jardine
Special Provisions - FI Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
Email this Content