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
XXXXX
XXXXX
XXXXX
Case Number: 121701
Attention: XXXXX
XXXXX
March 15, 2010
Dear XXXXX:
Subject:
GST/HST RULING
Application of GST/HST to discounts automatically offered at point of sale
Thank you for your letter of XXXXX, and the additional information and contracts you submitted on XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to discounts automatically offered at point of sale at XXXXX to its customers.
HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador. 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
• XXXXX.
• XXXXX currently operates XXXXX locations in XXXXX as well as a XXXXX electronic commerce website that sells and delivers to its customers a host of goods and services XXXXX.
• The business number for XXXXX.
• XXXXX deducts amounts from money owed to its suppliers. These amounts, contractually agreed to by XXXXX and its suppliers, are used to promote specific goods by offering discounts on those goods to all customers for specific periods of time.
• In the course of XXXXX business, different goods are regularly offered at a discount in three scenarios of concern as follows:
Scenario A - XXXXX
• In reaction to competition, XXXXX will negotiate with its suppliers temporary discounts on goods which are automatically granted at the point of sale system to its customers.
• XXXXX enters into a XXXXX contract with each supplier; i.e., the XXXXX included in your submission. The contract identifies the discounts offered to XXXXX as temporary price discounts. In the past, the contract identified the temporary discounts as a "coupon" or "instant rebate."
• XXXXX.
• A sign card displays the description, original price, discount amount and after discount amount of the good as follows:
XXXXX
XXXXX
XXXXX
XXXXX g $19.99
Temporary price discount expiration
1/17/10 -5.00
Price at register $14.99
• The bar code pertaining to the item is programmed to display a second line on the sales receipt relating to the temporary discount (a negative amount).
• The sales receipt, like the sign card, shows the description, original price, and discount amount of the item.
• The cash register receipt will display the purchase of this good as follows:
XXXXX $19.99
XXXXX $ 5.00-
Sub Total $14.99
GST $ 1.00
Total $15.99
• The current and past practice has been to charge GST/HST on the pre-discounted price.
• The sum of the temporary discount granted to customers is tabulated by XXXXX and deducted automatically from payments owed to the respective vendors of the discounted goods.
Scenario B - XXXXX
• XXXXX also offers for sale goods on which a temporary price discount is negotiated with a supplier. Since these negotiations are not a reaction to competition but rather planned discounts (often due to the supplier having a promotional allowance budget for this item), XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
• Effective XXXXX, XXXXX modified its procedure in order to systematically grant the discounts to all customers. Since that date, the purchase of the discounted item reflects the same pricing and tax calculation procedures as the temporary price reductions outlined in Scenario A above.
Scenario C - Electronic Commerce Website Discounts.
• XXXXX agrees with its suppliers to offer temporary price discounts for on-line sales on its XXXXX electronic commerce website in accordance with the XXXXX Contract and the XXXXX.
• Customers are automatically granted these reductions for on-line purchases of the item in question. The customer has no obligation to remit any form of coupon to XXXXX.
• The current and past practice has been to charge GST/HST on the pre-discounted price.
Ruling Requested
With respect to the above three scenarios in which XXXXX grants a temporary discount you would like us to confirm that the GST/HST applies on the purchase price, net of the discount.
With respect to the discount amounts deducted from monies owed by XXXXX to its suppliers, you would like confirmation that the amounts deducted to promote the supplier's products are promotional allowances for purposes of section 232.1 of the ETA and hence the amounts are not consideration for a supply made by XXXXX to the suppliers.
Ruling Given
Based on the facts set out above, we rule that in each of the three outlined scenarios, the GST/HST applies on the consideration for the supply, net of the discounts, i.e, after the discounts are deducted from the price of the relevant goods.
With respect to the discount amounts deducted by XXXXX from amounts owed by XXXXX to its suppliers, the payments as described in the facts relating to the temporary price discounts represent amounts paid for promotional allowances for purposes of section 232.1 of the ETA and hence are not consideration for a supply made by XXXXX to the suppliers.
These rulings are based on facts and contracts provided to CRA describing XXXXX current discount programs and do not necessarily apply to past transactions where the facts and contracts were not consistent with those described in this ruling.
These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings 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 613-952-9220. 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
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content