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
14th Floor, 320 Queen St.
Ottawa, ON K1A 0L5
Case Number: 118636
Attention: XXXXX XXXXX
Business Number: XXXXX
XXXXX
Dear XXXXX:
Subject:
GST/HST RULING
Tax status of the supply of gift packages
Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your supply of XXXXX gift packages.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
Based on XXXXX, and your additional information submitted XXXXX, our understanding of the facts is as follows:
1. XXXXX is a newly incorporated company that has started a business of selling XXXXX gift packages.
2. XXXXX intends to sell these gift packages either online (XXXXX) or through various independent retail outlets (retailers).
3. Each gift package features a gift card and a guidebook describing a selection of different suppliers for which the gift card can be redeemed at participating vendors. Each gift card can only be used for one of the vendors listed in the guidebook.
4. The guidebook and the gift card have no intrinsic value (other than the gift card being redeemable for a particular supply).
5. There are XXXXX gift packages outlined on your Web Site:
XXXXX.
6. XXXXX.
7. XXXXX.
8. XXXXX.
9. After purchasing a specific gift package, the enclosed gift card can then be redeemed for the choice of a supply offered by a select group of suppliers. The supplier accepts the gift card as payment for the chosen XXXXX". No additional consideration is paid to the supplier for the supply.
10. The gift card in each gift package does not indicate the value of the gift card. The guidebook that accompanies each gift card specifies the list of supplies that the particular gift card can be redeemed for and the value of these supplies. In addition, the value of the gift card is embedded in its barcode.
11. Your Website describes the gift card in the gift package as XXXXX. Unlike other gift certificates or gift cards, there is no dollar value attached to the gift XXXXX.
12. XXXXX delivers gift packages to retailers on a consignment basis.
13. At the end of each month the retailers submit the money collected on gift packages sold during the month to XXXXX less an amount for their commission which is in the XXXXX% range.
14. When a reservation is made at a participating vendor, XXXXX, the vendor invoices XXXXX at the time of reservation is made by the client.
15. If no reservation is made, or if the reservation is made XXXXX to the supply, the participating vendor invoices XXXXX once they have collected the gift card from the cardholder.
16. The vendors are responsible for the quality and security of the supply.
17. XXXXX compensates the participating vendor for the supply provided to the cardholder by remitting the amount collected on the sale of the card to the participating vendor minus XXXXX discount/commission XXXXX.
Ruling Requested
You would like to know whether XXXXX is required to charge GST/HST on the sale of the gift packages to consumers on-line or through independent retail outlets.
Ruling Given
Based on the facts set out above, we rule that the sale of the gift packages is not subject to GST/HST as they are considered to be gift certificates for purposes of section 181.2 of the ETA.
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 181.2 provides that the issuance or sale of a gift certificate is deemed not to be a supply for GST/HST purposes. Consequently, GST/HST is not payable on the consideration paid for the gift certificate. This section further provides that when the recipient redeems the gift certificate, it is to be treated as money to be used in the settlement of the transaction. That is, where the redeeming transaction is for a taxable supply of property or service (other than a zero-rated supply), GST/HST is applicable on the total consideration payable for that supply when the gift certificate is provided as consideration for the supply to the vendor.
Although, section 181.2 deems the sale of the gift certificate not to be a supply for GST/HST purposes, a person who makes that supply is still considered to be engaged in a commercial activity. Consequently, XXXXX is able, if registered for GST/HST purposes, to claim the GST/HST paid on its expenses related to this commercial activity as input tax credits provided the requirements under section 169 of the ETA are met. In addition, you should be aware that the supply by the retailer to XXXXX of selling the gift packages in exchange for consideration in the form of a commission is a taxable supply on which XXXXX will be required to pay GST/HST to the retailer. Additionally, the supply by XXXXX to the participating vendor of arranging for the XXXXX package through its issuance of gift cards is a taxable supply for consideration represented by the commission/discount paid to XXXXX by the participating vendor that is deducted by XXXXX before paying the participating vendor for the applicable supply for which the card was issued and redeemed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613 952 9220. 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,
Larry Springstead
Industry Sector Specialist
Specialty Tax Unit
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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