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: 127986
Business Number: [...]
September 12, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Supply of online vouchers
Thank you for your letter of August 30, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of online vouchers.
We apologize for the delay in our response.
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.
From your incoming fax, our telephone conversations and review of your Web site, we understand the following:
1. [...] ([the Business]) operating as [...] was registered for GST/HST purposes effective [mm/dd/yyyy] and operates the Web site [...].
2. [The Business] promotes and sells through its Web site vouchers redeemable for goods and/or services offered at a discount by numerous merchants.
3. You have provided five sample vouchers that are offered on the Web site:
(a) $[...] worth of food and drink offered for the promotional price of $[...]. The voucher expires [...] months from the purchase date and has no cash value.
(b) A manicure and pedicure regularly priced at $[...] offered for the promotional price of $[...]. The voucher expires [...] months from the purchase date and has no cash value.
(c) A photography service regularly priced at $[...] offered for the promotional price of $[...]. The voucher expires [...] months from the purchase date and has no cash value.
(d) $[...] worth of products at a retailer offered for the promotional price of $[...]. The voucher expires [...] months from the purchase date and has no cash value.
(e) [...] large pizzas and [...] drinks regularly priced at $[...] offered for the promotional price of $[...]. The voucher expires [...] months from the purchase date and has no cash value.
4. The vouchers are offered for a certain amount of time.
5. [The Business] does not collect the GST/HST on the sale of the vouchers.
6. [The Business] keeps a portion of each sale as compensation for the service supplied to the merchants and the remaining portion is paid to the merchant.
7. [The Business] charges the GST/HST to the merchant on the portion of the sale proceeds kept.
Ruling Requested
You would like clarification of the applicability of the GST/HST to the sale of the vouchers as described above.
We are unable to provide a ruling in this case, as agreements or contracts that set out the exact nature of the relationship between [the Business] and the merchants are not available. However, we are pleased to provide you with an interpretation, which is a general explanation of how the law would apply to assist you in determining your obligations and entitlements under the ETA.
Interpretation Given
The GST/HST treatment of deal-based vouchers depends on the terms of the particular agreement between the parties and whether the voucher is a coupon or a gift certificate.
The definition of coupon includes a voucher, receipt, ticket or other device that does not include a gift certificate or a barter unit.
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 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.
The vouchers described above are redeemable for goods or services supplied by the merchants, are sold for consideration (i.e., the promotional price) and have no intrinsic value. Hence, the vouchers may be viewed as gift certificates.
Section 181.2 provides that, for GST/HST purposes, the issuance or sale of a gift certificate for consideration is deemed not to be a supply and, when given as consideration for a supply of property or a service, the gift certificate is deemed to be money.
No GST/HST should be charged to customers on the issuance or sale of vouchers that are considered to be gift certificates; however, 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 charged in respect of the taxable supply (other than zero-rated) of the goods or services. At the time of redemption, the voucher is treated as money that is given as full or partial payment towards the purchase of the goods or services.
Merchants that intend to supply the goods and services otherwise valued at the regular price for the promotional price paid for the voucher should determine the value of the consideration upon which GST/HST must be accounted by referring to the promotional price.
Please note that a registrant whose business involves the promotion, marketing and sale of vouchers should charge, collect and remit GST/HST on amounts retained as consideration for the supply of the service provided to the merchants.
Although, section 181.2 deems the sale of a 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.
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 613-952-1512. 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
Specialty Tax Unit
Financial Institution & Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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