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
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 117433
June 22, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Purchase of loyalty program miles
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the purchase of loyalty program miles.
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.
We understand the following:
1. XXXXX ("the member"), are a resident of Ontario and a member of XXXXX ("the Airline's") XXXXX (the "Program"). The Airline is a GST/HST registrant.
2. The Program operates as a division of the Airline from XXXXX and is aware that the member's home address is in Ontario.
3. Members of the Program can earn miles for certain flights, hotel stays, and car rentals and through other partners of the Program that offer miles for applicable purchases.
4. In addition to earning miles, the member purchased XXXXX miles at a cost of XXXXX¢ per mile in XXXXX through XXXXX, the "service provider", a GST/HST registrant, and agent for the Program. GST was charged on the calculated amount but not on other costs separately identified (XXXXX Tax and a processing fee) yet associated to the sale of the miles.(XXXXX.)
5. Members may redeem the miles towards flights or upgrading one's flight. Applicable taxes and fees not covered by the redeemed miles must be paid by the member.
6. XXXXX.
Interpretation Requested
1. What is the characterization of the sale of miles supplied from the Airline's Program to a member of the loyalty program under which the miles are made, and is a sale of miles a taxable supply for GST/HST purposes?
2. Is there double taxation when GST/HST is paid on the miles and when any applicable GST/HST is paid on the flight purchased using the miles?
3. What is the characterization of the processing fee and is GST/HST applicable to it?
4. Does it matter whether the miles are sold directly or through the service provider?
Interpretation Given
Based on the information provided,
1. The sale of miles supplied by the Airline, which is a GST/HST registrant, through its Program to a member of the loyalty program under which the miles are made would be a taxable supply (that is not zero-rated) of intangible personal property ("IPP") for GST/HST purposes.
2. The purchase of miles would be the purchase of a supply of IPP separate from the purchase of flights, including flights purchased by a member using miles. Therefore, there would be no double taxation when GST/HST is paid on the value for the purchase of miles. When miles are redeemed to purchase a flight, a separate supply of passenger transportation services would have been made, and any applicable GST/HST would be payable based on the value of the consideration payable, if any. The value of the consideration would be the costs of the flight less the discount allowed for the miles redeemed. Where the consideration for the flight is reduced to zero but the member is required to pay certain taxes and/or fees related to the supply, the GST/HST, as applicable, would apply on the amounts payable.
3. The processing fee charged at the time of purchasing the additional miles in XXXXX is separately identifiable but charged in respect of fees for administrative services performed by the Airline in respect of the additional miles that may be used in Canada. As such, the processing fee would be additional consideration for the purchase of the miles and, accordingly, the fee for the miles and the processing fee would be subject to GST/HST.
4. We did not review any contracts between the service provider and the Program; however, we contacted the service provider, and have learned that the arrangement between the service provider and the Airline in respect of the Program has changed effective XXXXX. Under the new arrangement, when a member purchases additional miles the Airline would first make its supply of the miles, charging for those miles and applicable taxes and fees, to the service provider. The service provider would then make a re-supply of the miles to the member. The fee charged by the service provider to the member for the re-supply of the miles, the recovery of any taxes and other charges and any transaction or processing fee would be all part of the consideration for the supply of the miles made by the service provider to the member; the total consideration payable to the service provider by the member for the re-supply of the miles would be subject to GST/HST as applicable.
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 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
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