Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 127619
Business Number: [...]
July 19, 2011
Dear [Client]:
Subject:
GST/HST RULING
Supply of a service of marketing on-line vouchers
Thank you for your letter of July 30, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of online vouchers.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. 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
From your letter, enclosures, telephone conversation, and a review of the Web site, we understand the following:
[...] ([the Company]) is a corporation headquartered in [...] [City 1, Participating Province X], and is registered for GST/HST.
[The Company] enters into marketing agreements with various merchants to promote their businesses by selling vouchers referred to as [...] on [the Company's] Web site, [...] which are redeemable for goods or services offered by the merchants.
A copy of a sample voucher provided to us includes information such as the title [...] deal description (e.g. $[...] for $[...] worth of art), business' name and address, purchaser's name, voucher number, verify number, and expiry date. Any special conditions are listed on [...] and printed on the voucher.
Once a purchase is made, the person receives the voucher electronically; the voucher can then be printed out and presented to the merchant to obtain the specific property or service. Alternatively, the person can show the merchant the electronic voucher on the person's smart phone.
A person who purchases a voucher is subject to the Terms and Conditions that are posted on [the Company's] [Web site].
Terms and Conditions
Section [...] of the Terms and Conditions provides, in part, the following:
The vouchers are for promotional purposes and are sold for less than face value.
The vouchers are prepaid obligations for a merchant that has agreed with [the Company] to honour the voucher for the full amount. [The Company] sells only the voucher and the merchant is solely responsible for honouring the voucher.
The vouchers have no cash value and if redeemed for less than the full amount, the buyer is not entitled to any cash back, credit or replacement voucher for the remaining value.
The vouchers contain an expiration date which is relevant to their promotional value. As may be required by applicable laws, a merchant may honour the original cash value paid for a voucher if it is presented to the merchant after the expiry date. The merchant is solely responsible for maintaining compliance with any statutory limitations regarding expiry dates for vouchers.
Marketing Agreement
A copy of a standard Marketing Agreement (the Agreement) governing the issuance of the vouchers and that [the Company] enters into with each merchant includes the following information.
The parties agree that the relationship of [the Company] under the Agreement is one of an independent contractor.
Section [...] provides, in part, the following definitions:
"Price" is the promotional price of the product which [the Company] endeavours to sell on behalf of the merchant. "Value" is the usual retail price of the product which [the Company] endeavours to sell on behalf of the merchant. "Discount" is the percentage difference between the Value and Price. "Offer" means the Product, Price, Value, Special Conditions collectively defined in Schedule [...].
[The Company] agrees to promote on its Web site in the local market Products or services that the merchant agrees to provide to the buyer of a voucher according to the Terms of Offer set out in Schedule [...].
The promotion will take the form of actual advertisement of the goods and services offered, special conditions and information about the merchant's business. The promotion will be featured on the Web site for a limited time and will be shared with [the Company's] network of subscribers. [The Company] will use its internet marketing and social media channels to further increase exposure of the product.
Section [...] provides that [the Company] will take a commission on an order received for the merchant. [The Company] reserves the right to determine the commission amount, in its absolute discretion, to ensure that it meets the needs or requirements of [the Company]. The commission is defined in Schedule [...].
Section [...] provides that the merchant agrees to honour the voucher as set out in Schedule [...] under [the Company's] standard Terms and Conditions in Schedule [...].
Section [...] indicates that the Product shall be sold in accordance with [the Company's] Standard Terms and Conditions (of Schedule [...]).
Schedule [...] describes The Terms of Offer for the Product or services subject to the promotion. It includes the stated dollar value (e.g., $[...]), the percentage of the discount from the face value (e.g., [...]%), the price (e.g., $[...]), minimum and maximum number of buyers, length of promotion, the date(s) of the promotion, [the Company's] percentage (e.g., [...]%), the merchant's expected net revenue per buyer (e.g., $[...]), merchant's name, product description, special conditions.
Schedule [...] of the Agreement provides that the Terms and Conditions on [the Company's] Web site form an integral part of the Agreement.
Ruling Requested
You would like to know whether the supply of the service that [the Company] provides qualifies as an exempt supply of arranging for the supply of a financial service and therefore is GST/HST exempt.
Ruling Given
Based on the facts set out above, we rule that the service that [the Company] provides does not qualify as arranging for a supply of a financial service. Rather, [the Company] is making a taxable supply of a service to the merchants that is not zero-rated and therefore is required to account for the GST/HST with respect to the commission retained as consideration for the supply.
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.
Explanation
A supply (e.g., sale) of property or service made in Canada is generally taxable and subject to GST/HST unless exempt under Schedule V or zero-rated under Schedule VI. While the recipient of a taxable supply is liable to pay the tax on the consideration charged for a taxable supply, the obligation to collect that tax rests with the supplier.
Financial services are defined in subsection 123(1) and are generally exempt. A service will be a financial service where it is included in any of paragraphs (a) to (m) of the definition of financial service and is not otherwise excluded by any of paragraphs (n) to (t) of that same definition.
Paragraph (l) of the definition of financial service provides, in part, that the arranging for a service that is referred to in any of paragraphs (a) to (i) and that is not referred to in any of paragraphs (n) to (t) will be a financial service.
Services in the nature of management, administration, marketing or promotional activities are intended to be taxable as they are not themselves financial services.
Based on the Agreement, [the Company] is not arranging for the supply of a financial service between the merchant and the consumer that is included in any of paragraphs (a) to (m). Rather, [the Company] is making a supply of a service to the merchant, which is a taxable supply that is not zero-rated. Therefore, [the Company] is required to charge GST/HST to the merchants with respect to the commission retained as compensation for its supply of the service.
OTHER INFORMATION
The GST/HST treatment of deal-based vouchers depends on the terms of the particular agreements between the parties and whether the voucher is a coupon or a gift certificate.
The term "gift certificate" is not defined in the ETA. Generally, the Canada Revenue Agency considers the following criteria in determining whether a particular device is a gift certificate. A gift certificate is a device (e.g. voucher, receipt, ticket)
• that usually has a monetary value or is for a particular supply of property or service
• that can be redeemed on the purchase of property or a service from a particular supplier; i.e. the supplier agrees to accept the device as consideration, or a part thereof, towards the purchase of property or a service,
• for which consideration was given, and
• that has no intrinsic value.
According to the standard Marketing Agreement which includes the Terms of Offer of Schedule [...] and the Standard Terms and Conditions on [the Company's] [Web site], the vouchers issued have a monetary value, are redeemable for goods and services supplied by the merchants, are sold for consideration (i.e., the promotional price) and have no intrinsic value. Hence, the vouchers issued by [the Company] in accordance with this standard Agreement meet the above criteria and are considered to be gift certificates.
Section 181.2 provides that, for GST/HST purposes, the issuance or sale of a gift certificate for consideration shall be deemed not to be a supply and, when given as consideration for a supply of property or a service, the gift certificate shall be deemed to be money.
[The Company] is not required to account for the GST/HST on the sale of the [...] vouchers; instead, the GST/HST registrant merchant who accepts the voucher is required to account for the GST/HST payable by the recipient on the value of the consideration in respect of a taxable supply of property or services. At the time of redemption, the voucher is treated as money that is used as full or partial payment towards the purchase of the property or services.
Since the Agreement indicates that the merchants intend to supply the goods and services otherwise valued at the regular price for the promotional price paid for the voucher, the value of the consideration upon which GST/HST must be accounted for should be determined by reference to the promotional price.
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. Therefore, the person, if registered for GST/HST, may be eligible to claim as input tax credits (ITCs) the GST/HST paid on the person's expenses related to this commercial activity provided all of the requirements under section 169 for claiming ITCs are met.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-1512. 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,
Constantin Constant
Speciaty Tax Unit
Senior Rulings Officer
UNCLASSIFIED
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