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.
XXXXX
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Attention: XXXXX XXXXX
Case Number: 112093
July 2, 2010
Dear XXXXX:
Subject:
GST/HST RULING
Treatment of unredeemed value of gift cards
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the unredeemed value of gift cards.
HST currently applies at the rate of 13% in Nova Scotia, New Brunswick, and Newfoundland and Labrador. Effective July 1, 2010, HST will apply at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, and 12% in British Columbia. GST will continue to apply 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
We understand the facts as follows:
1. The taxpayers are XXXXX corporations, namely, XXXXX, XXXXX and XXXXX. Each is a GST/HST registrant XXXXX, XXXXX and XXXXX, respectively-and each operates under the name XXXXX or XXXXX.
2. The taxpayers are collectively referred to as "the Company" or by the operating name and are represented by XXXXX. Third party authorization from the taxpayers is received.
3. The Company provides salon, day spa and cosmetic dermatology clinic services and related products in its XXXXX locations in XXXXX and XXXXX.
4. The Company also sells gift certificate and gift cards that may be used to purchase any of its products or services. Due to recent changes to provincial legislation that governs gift certificates and gift cards, the Company has had to make changes to the terms of the gift certificates and gift cards.
5. Among other things, all gift cards, old and new, contain the following features:
• The Company is not responsible for destroyed, lost or stolen cars. If destroyed, lost or stolen, the result is the same as with cash.
• Purchases will be deducted from the gift card until the value reaches zero.
• Unused value remaining on a gift card cannot be redeemed for cash.
• Refunds for items purchased using a gift card will be re-applied to a gift card. That is, there is no possibility of a refund creating the payment of a cash refund when the original item was acquired with a gift card.
• The Company is not responsible for unauthorized use of the card.6. The old gift cards were treated as gift certificates at the time of issue and sale (i.e. no GST/HST was charged or collected on the value of the supplies of the old gift cards).
7. Some old gift cards issued under the gift card program rules did not expire for XXXXX or more years. In this case, the Company earned a XXXXX% monthly administrative fee from the unredeemed value of the gift card. This administrative fee was collected by the Company without any GST/HST charged or remitted on this amount.
8. When old gift cards expired, the Company was required to recognize the unredeemed value of the cards as income for accounting and income tax purposes-the unredeemed value was brought into income by the Company and GST/HST was remitted on the value recorded as a "forfeited deposit"; however, the amount was not in respect of a breach, modification or termination of any agreements for the making of any taxable supplies (other than zero-rated supplies) of property or services to be provided by the Company. Furthermore, the amount of the unredeemed value brought into income was not characterized as consideration for a supply of property or services.
9. The new gift cards are also treated as gift certificates at the time of issue and sale (i.e. no GST/HST is charged or collected on the value of the supplies of the new gift cards).
10. Due to generally accepted accounting principles and income tax purposes, the Company includes an amount in income that represents the expected unredeemed value of the new gift cards-the amount of the expected unredeemed value brought into income is not characterized as consideration for a supply. Furthermore, the actual redemption value of the new gift cards is not affected.
Ruling Requested
You would like to know:
1. Are the old and new versions of the gift cards supplied by the vendor gift certificates for GST/HST purposes?
2. With respect to the unredeemed value of the expired old cards and the estimate of the unredeemed value of the new cards that must be brought into income for income tax purposes, what are the GST/HST consequences? In other words, does subsection 182(1) apply deeming GST/HST to have been collected by the Company?
3. With respect to the XXXXX% administrative fee deducted from the value of each gift card over one year that is not expired, is the fee consideration for a taxable supply of a service?
Ruling Given
Based on the facts set out above, we rule that
1. The gift cards, old and new, are gift certificates for GST/HST purposes under section 181.2.
2. The bringing into income for accounting and income tax purposes of the unredeemed value of the expired old cards and the estimate of the unredeemed value of new cards has no GST/HST consequences where the amount brought into income is not characterized as consideration for a supply and the amount is not in respect of a breach, modification or termination of any agreements for the making of any taxable supplies (other than zero-rated supplies) of property or services to be provided by the Company-i.e. subsection 182(1) does not apply.
3. The XXXXX% administrative fee deducted from the value of each gift card over one year that is not expired is consideration for a taxable supply of a service. The supply of a gift card is a supply made in the course of a commercial activity and, therefore, any fee charged in relation to the gift card is consideration for a taxable supply that is not a zero-rated supply. Accordingly, the supply of the service in respect of the gift card is a taxable supply and the fee is subject to GST/HST at the rate applicable at the time the fee was collected.
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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8811. 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,
William Parker
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content