Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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Case Number: 99615-2
Attention: XXXXX XXXXX
December 22, 2009
Dear XXXXX:
Subject:
GST/HST RULING
GST Treatment of XXXXX Cards
We are writing further to your letter of XXXXX, and related telephone conversation with Mr. Bao Tran of this office, concerning our ruling letter of February 29, 2008 (our file RITS 99615), XXXXX. At issue was the GST/HST treatment of vouchers issued by XXXXX.
We understand that the facts on which we based our ruling have not changed. As such, they are not repeated here. All legislative references are to the Excise Tax Act ("ETA").
In our letter, we ruled that the XXXXX vouchers at issue (the "Vouchers") are not reimbursable coupons to which subsection 181(2) applies and, as a result, XXXXX is not entitled to notional input tax credits ("ITCs") under subsection 181(5) on the amount reimbursed to XXXXX. You have asked us to review our ruling in light of XXXXX raised in your current submission.
Legislation
The legislation relevant to the issues is contained in section 181. Subsection 181(2) applies where a registrant accepts a coupon that entitles the recipient of a taxable supply (other than a zero-rated supply) to a reduction in the price of the supply equal to a fixed-dollar amount and the registrant can reasonably expect to be reimbursed for the redemption of the coupon by another person.
Where subsection 181(2) applies, the supplier is required to collect and remit tax on the full amount of the sale price without reference to the value of the coupon. Pursuant to paragraph 181(2)(b), an amount equal to the "tax fraction" of the coupon would be included in the supplier's net tax for the reporting period in which the coupon was accepted. The tax fraction collectible by the supplier under paragraph 181(2)(b) might then be recoverable as an input tax credit by the person who pays the reimbursement, subject to the terms of subsection 181(5).
Issues
In your letter, you maintain that while a customer may acquire goods for less than the maximum stated value of a particular Voucher (e.g., $100), the Voucher is nevertheless a fixed-value coupon that falls within the provisions of subsection 181(2) and XXXXX is entitled to a notional ITC on the corresponding reimbursement under subsection 181(5). In support of your position, you make reference to statements made by Lamarre, J. in President's Choice Bank v The Queen [2009] ETC 2892 ("PC Bank") at paragraph 76:
"What we need to determine is whether a fixed dollar value exists at the time of redemption. There is a cash value at that time: there is a paper coupon or an electronic device showing a fixed dollar amount for the points redeemed; that amount is applied as a discount on the price of groceries purchased and is recorded on the customer's invoice."
Lamarre, J. went on to determine that that the coupon issuer (i.e., PC Bank) would have, but for circumstances peculiar to the PC Bank decision, been entitled to claim notional ITCs pursuant to subsection 181(5) when the issuer redeemed the coupon from the vendor (i.e., Loblaw). However, we note that this determination is predicated upon specific facts pertaining to PC Bank, namely those detailed in paragraph 7 of the judgement. Subparagraph 7(ii) is particularly relevant:
"... The PC Points could be redeemed, subject to the Loyalty terms and conditions, against the purchase of any eligible products, as defined in the LSA. Loblaw customers (Members) were required to earn a minimum of 20,000 PC Points before the points could be redeemed. Upon accumulating 20,000 PC Points, the Member could redeem the points acquired for the purchase of goods for a fixed value to [sic] equal to $20.00. PC Points could be further redeemed in fixed increments of 10,000 points, e.g., 30,000 points could be redeemed for $30.00, 40,000 points could be redeemed for $40.00, etc. A Member could only apply a PC Points redemption to a purchase of goods with a value equal to or greater than the value of the points being redeemed..."
The conclusion at paragraph 76 of the judgement is based on the facts pertaining to PC Bank, which indicate that the fixed amount reflects the terms and conditions outlined at paragraph 7; i.e., a fixed amount of $20 for each redemption of 10,000 points. The terms and conditions surrounding the use of the Vouchers in the present case are materially different from the terms and conditions of point redemptions in PC Bank: the price reduction attributable to a particular Voucher will vary with the actual purchase price of the good against which it is used, up to and including a maximum amount specified in the Voucher.
Ruling
It is our position that a particular device falling within section 181 may have a fixed value where that value can be determined without reference to the cost of the property or service for which the device is exchanged. Where, as here, the value of the device may vary depending on the final charge, the value of the device is variable and not fixed. In such cases, subsection 181(2) will not apply.
Accordingly, we confirm our previous ruling that the Vouchers do not meet the conditions of subsection 181(2). Since the actual price reduction accorded by a Voucher may vary with each purchase (albeit to the maximum specified amount), the Voucher cannot be considered as conferring a price reduction equal to a fixed dollar value, as is required by subsection 181(2). Moreover, we confirm that XXXXX is not entitled to a notional ITC under subsection 181(5) for the tax fraction of the amount reimbursed to XXXXX.
We further confirm that subsection 181(4) of the ETA will apply to the Vouchers. Under this provision, when a registrant accepts, in full or partial consideration for a supply of a property or service, a coupon that may be exchanged for the property or service or that entitles the recipient of the supply to a reduction of, or a discount on, the price of the property or service and subsection 181(2) does not apply in respect of the coupon, the value of the consideration for the supply is deemed to be the amount, if any, by which the value of the consideration for the supply exceeds the discount or exchange value of the coupon. As a result, when the Vouchers were redeemed at XXXXX stores for XXXXXequipment, they should have been treated as a reduction of consideration for GST purposes. No input tax credits are available in respect of redemptions of coupons that fall under subsection 181(4).
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.
Lastly, we wish to acknowledge that because subsection 181(4) requires that GST/HST apply to the purchase price of a particular supply net of the price reduction conferred by a particular Voucher, a customer who has paid tax on the full purchase price of the supply will have paid an excessive amount of tax. Note that subsection 232(1) would apply to remedy this situation by allowing a purchaser who has paid an amount as or on account of tax in error to seek a refund or credit of the amount from the supplier within two years after the date the amount was charged or collected by the supplier. Further information is provided in GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST Under Section 232 of the Excise Tax Act, available at www.cra-arc.gc.ca. However, if the supplier chooses not to refund or credit an amount of tax collected in error, then the purchaser may apply for a rebate of the amount under subsection 261(1). An application for this rebate must be filed within two years from the day the amount in question was paid. Further information is provided in the guide entitled General Application for GST/HST Rebates, also available at the aforementioned website.
We regret that we could not provide you with a more favourable response. If you wish to discuss any of these matters further, please call me directly at (613) 952-9219.
Yours truly,
Paul Hawtin
A/Manager
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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UNCLASSIFIED
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