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: 130199
BN: [...]
July 29, 2011
Dear [Client]:
Subject:
GST/HST RULING
Redemption of a voucher for a spa service
Thank you for your letter of November 9, 2010 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the redemption of a voucher against the supply of a service.
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 conversations, a review of your GST/HST account, your business Website and [...] [ABC Company] Website we understand the following:
As a sole proprietor who is registered for GST/HST, you operate a beauty salon under the name [...] [the Beauty Salon] located in [...] [City 1, Participating Province X]. Using waxing techniques, trained technicians provide skin care services such as hair removal and various facials.
In order to promote, market and sell to the general public a voucher redeemable for its services, [the Beauty Salon] (the "Merchant") entered into an agreement with [...] operating as [ABC] located in [City 2, Country X].
The [ABC Company] Merchant Service Agreement Standard Terms & Conditions together with the Merchant Service Agreement Order Form are collectively referred to herein as the "Agreement".
Standard Terms and Conditions
1. [ABC Company] will promote a voucher for the Merchant product or service with the particular deal characteristics specified in the Order Form. The Merchant is the issuer of the voucher.
2. [ABC Company] will use Merchant content (logo, info, photo) to prepare the promotional creative for the particular deal to be hosted on the [ABC Company].com website.
3. [ABC Company] will promote and offer the Merchant product or service identified in the Order Form through [ABC Company's] online platform on the terms and conditions described in the Order Form and the Deal Creative approved by the Merchant including the discounted price to be paid by the purchaser (the "Deal Price").
4. [ABC Company] will issue a numbered voucher to each purchaser of the discount offer and will provide to the Merchant the names of all persons having the right to redeem the vouchers and its corresponding numbers.
5. Merchant agrees that [ABC Company] simply markets and facilitates the purchase of the deal but that Merchant remains the issuer of the voucher. Accordingly, Merchant agrees that it is solely responsible to fulfill the Deal and provide the Merchant product to the individual redeeming each voucher in accordance with the terms of the Deal.
6. Merchant agrees to honour and fulfill a physical printout of the voucher or a voucher displayed on a mobile device.
7. As consideration for fulfilling its obligations under this Agreement, [ABC Company] will retain a commission fee set forth in Order Form from all payments received from purchasers.
8. [ABC Company] will remit to Merchant all payments received by purchasers minus the commission fee and program fee if any.
9. Merchant is responsible to collect and remit sales taxes owed to federal, state or local taxing authorities in connection with the sale or redemption of the vouchers.
[ABC Company] Merchant Service Agreement Order Form
• The Parties: [ABC Company] and Merchant: [the Beauty Salon]
• Deal description: $25 for $50 worth of any service or services
• Deal Price (i.e., fees paid by the consumer): $25
• Deal value (i.e., full value of voucher or approximate value of the deal):$50
• Commission fee: [...]% of paid Deal Price
[ABC Company] Certificate
A sample voucher bearing number [...] issued by [ABC Company] under the Agreement made available to us contains the following:
• $50 to spend on Hair-Removal services and other services at [the Beauty Salon]
• The Fine Print indicates that all services must be redeemed during one visit, used by the same customer and cannot be shared.
• Except where noted in the Fine Print, the voucher
has no cash value/cash back
entire value must be used in one visit
cannot be combined with any other offer or promotion
[subject to] [ABC Company] Terms and Conditions - [ABC Company].com/terms
prices listed are in Canadian dollars
tax and gratuity are not listed.
Section [...] (Global Terms) of the Terms and Conditions available at [ABC Company].com sets out the following relevant additional terms applicable to all vouchers:
• no cash value for any Voucher,
• no cash back will be issued for partial redemption of the paid portion of a Voucher, except as required by law,
• no cash back or credit will be issued for partial redemption of the promotional portion of a Voucher,
• Vouchers cannot be used for taxes, tips, prior balances, shipping or handling, as applicable, unless otherwise stated at the time a Voucher is purchased, the Voucher price does not include sales, value added or use taxes, which may be charged to you separately by the Merchant at the time you redeem the Voucher.
Although the voucher entitles the customer to receive services regularly priced at $50 for $25 you have also indicated that in some instances the voucher may be redeemed for services valued at more or less than $50.
Ruling Requested
You would like to know how GST/HST applies when the voucher is presented by the purchaser to the Merchant to acquire the specific services.
Ruling Given
Based on the facts set out above, we rule that GST/HST should be charged on the value of consideration for the services upon redemption of the voucher. Generally, the value of consideration should be determined by reference to the Deal Price paid for the voucher.
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
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 Agreement which includes the Order Form, the vouchers issued have a monetary value, are redeemable for services supplied by the Merchant, are sold for consideration (i.e., the Deal Price) and have no intrinsic value. Hence, the vouchers issued on the terms and conditions of 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.
Neither [ABC Company] nor the Merchant is required to account for the GST/HST on the sale of the vouchers to the customers; however, upon redemption of the vouchers, the Merchant [the Beauty Salon] is required to account for the GST/HST payable by the recipient (i.e., the customer) on the value of the consideration charged in respect of the taxable supply of the services set out in the deal described in the Order Form. At the time of redemption, the voucher is treated as money that is used as full or partial payment towards the purchase of the services.
Since the Standard Agreement indicates that the Merchant intends to supply the services otherwise valued at the full price of $50 for the Deal Price of $25 paid for the voucher, the value of the consideration upon which GST/HST must be accounted for should be determined by reference to the Deal Price of $25.
Where the Merchant allows the customer to redeem the voucher for services regularly priced at more than $50, the value of consideration would be determined by reference to the Deal Price of $25 plus additional consideration, if any, paid for the extra services over and above the $50.
Where the Merchant allows the customer to redeem the voucher for services regularly priced at an amount that is greater than or equal to $25 but less than $50, the value of consideration would be determined by reference to the Deal Price of $25.
Lastly, where the Merchant allows the customer to redeem the voucher for services regularly priced at less than $25 and the remaining balance is either forfeited to the Merchant or refunded to the customer, the value of consideration would be determined by reference to the regular price of the services charged by the Merchant.
It is up to the Merchant to determine whether the value of consideration for a deal includes or excludes an amount of tax. A review of the terms of all relevant documents may help in making such determination. Should the Merchant conclude that the Deal Price includes an amount of tax, that amount should be backed out of the price paid to arrive at the value of consideration.
Please note that by fulfilling its obligations under the Agreement, [ABC Company] is making a taxable supply of a service to the Merchant and is required to charge GST/HST with respect to the commission fee retained as compensation for the supply of the service.
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 and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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