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
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 124110
Attention: XXXXX XXXXX
June 29, 2010
Dear XXXXX:
Subject:
GST/HST
Transition to HST in Ontario and British Columbia - Coupon and Rebate Redemption
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the redemption of coupons for retailers and rebates to consumers on behalf of manufacturers.
As a redemption agent XXXXX processes coupons and rebates received from retailers and consumers respectively. Some of these coupons and rebates are for taxable products and these amounts are tax-included for GST/HST purposes. When you bill the manufacturer for what you have paid out to the retailers and consumers you break out the tax component for the manufacturers so that they may calculate their input tax credits.
Due to HST being introduced in Ontario and British Columbia as of July 1, 2010, you propose a phase-in schedule of how you would report the HST embedded in the coupon face values and consumer rebate dollars. You state that the phase-in is necessary due to the fact that coupons/rebates redeemed by consumers in July will not arrive at your facility immediately and that you need to take into consideration the turnaround times.
Your proposed phase-in schedule is as follows:
Coupons
XXXXX
XXXXX
XXXXX
XXXXX
Rebates
XXXXX
XXXXX
The Excise Tax Act provides specific rules for eligibility for input tax credits for the manufacturer who offers coupons and rebates that are tax included.
The coupon redemption rules are found in subsection 181(5) of the Excise Tax Act (ETA). For reimburseable coupons, where, in full or partial consideration for a taxable supply of property or a service, a supplier who is a registrant accepts 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 a particular person at any time pays, in the course of a commercial activity of the particular person, an amount to the supplier for the redemption of the coupon, the following rule applies. If the supply is not a zero-rated supply and the coupon entitled the recipient to a reduction of the price of the property or service equal to a fixed dollar amount specified in the coupon (in this paragraph referred to as the "coupon value"), the particular person, if a registrant (other than a registrant who is a prescribed registrant for the purposes of subsection 188(5)) at that time, may claim an input tax credit for the reporting period of the particular person that includes that time equal to the tax fraction of the coupon value, unless all or part of that coupon value is an amount of an adjustment, refund or credit to which subsection 232(3) applies.
For purposes of the rebate redemption rules as outlined in section 181.1, if a registrant makes a taxable supply in Canada of property or a service (other than a zero-rated supply), a particular person acquires the property or service, either from the registrant or from another person, the registrant pays, at any time, a rebate in respect of the property or service to the particular person and provides written indication that a portion of the rebate is an amount on account of tax the registrant may claim an input tax credit for the reporting period of the registrant that includes that time equal to the product obtained when the amount of the rebate is multiplied by the tax fraction as defined in the section.
In either case, it is our position that under the ETA, there is no statutory or policy authority to allow for manufacturers to deduct estimated input tax credits when calculating their net tax in relation to coupon or rebate input tax credits allowed under the above-mentioned sections. Input tax credit claims must be supported by source documentation.
Subsection 169(4) of the ETA provides the rules related to required documentation. A registrant may not claim an input tax credit for a reporting period unless, before filing the return in which the credit is claimed, the registrant has obtained sufficient evidence in such form containing such information as will enable the amount of the input tax credit to be determined, including any such information as may be prescribed. The information that is prescribed is found in the Input Tax Credit Information (GST/HST) Regulations.
Accordingly, when you are processing coupons and rebates specifically identified as redeemed, and evidenced as such through source documentation, before July 1, 2010, there will be an input tax credit entitlement related to the GST amount while coupons and rebates evidenced as redeemed on or after July 1, 2010 will give rise to an input tax credit entitlement related to the GST/HST amount depending on the province in which the coupon or rebate was processed.
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.
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
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