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: 131157
Business Number: [...]
September 27, 2011
Dear [Client]:
Subject:
GST/HST RULING
[Application of the GST/HST on the retail value of] Promotional Certificates
Thank you for your fax of December 20, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to promotional certificates.
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
Our understanding of the facts based on your fax, sample promotional certificates and our telephone conversations of June 21, and July 19, 2011, is as follows:
1. [...] ([Corporation A]) is registered for GST/HST purposes with Business Number [...].
2. [Corporation A] is a promotions company that works with retail merchants across Canada to promote their businesses as follows: [Corporation A] enters into promotional agreements with retailers and offers promotional services to them for [...]. In addition, in most cases, the agreements offer [...] rebates to the retailers based on the number of cards or promotional certificates (certificates) sold by [Corporation A] to the general public.
3. [Corporation A] sells the certificates to the general public and collects GST/HST based upon the selling price of the certificates.
4. In return, the retailers agree to provide goods or services to the general public as indicated on the certificates. There is usually a pre-determined expiry date for the certificates, based on the agreements with the retailers.
5. Two examples of [Corporation A's] certificates, their respective promotional agreements and one Addendum [...] were included with the submission. The two example certificates provided were between [Corporation A] and [...] (RestaurantCo) and [Corporation A] and [...] (SpaCo). Additional certificates were received for [...] (DinerCo), [...] (WaterCo) and [...] (AmusementCo). The latter three certificates contain perforated, detachable vouchers.
RestaurantCo
6. The RestaurantCo certificate offers discounts at [...] locations in [...] [Participating Province X]. The certificate lists the discount provisions and a sample menu. The certificate has a value of over $[...] and is sold for $19.99. It has four components:
• A single use [dining] offer of a [...]% discount on food total (maximum value $[...])
• [...] free dinner entrees: Buy one, get one
• [...] free lunch entrees: Buy one, get one
• Purchaser will receive $[...] in RestaurantCo cash with every catered order over $[...]
7. The certificate has a number of terms and conditions which include the following: The certificate is limited to one per table and must be shown to receive offers; maximum [...] "Buy one, get one" discounts per table for which the least expensive item will be deducted from the bill; a gratuity will be applied; and not to be combined with any other offer.
8. The certificate states that [Corporation A] is the marketing and distribution agent for this program and the offers presented in the certificate are those of RestaurantCo and not [Corporation A]. [Corporation A's] liability is limited to the purchase price of the certificate.
9. The following information was included within the Promotional Agreement:
• [Corporation A] will promote the distribution of up to a maximum of [...] certificates to the general public.
• RestaurantCo agrees to fulfill all promotional offers specified on any [Corporation A] certificate sold under this Agreement.
• RestaurantCo agrees to offer the food products as listed on the certificate attached.
• RestaurantCo acknowledges that it will benefit from the advertising through the sale of [Corporation A] certificates and agrees that [Corporation A] shall retain for its use all proceeds of the sale of [Corporation A] certificates. Pricing of the [Corporation A] certificates will be set by [Corporation A].
• Nothing in the Agreement shall constitute either party as the partner or agent of the other.
• The Promotional Agreement includes Addendum [...] under which [Corporation A] agrees to rebate RestaurantCo a set percentage of the retail price per certificate sold. This is based upon RestaurantCo agreeing to offer consideration that enhances the retail appeal of the [Corporation A] certificate. The standard amount rebated under the [...] is typically a percentage of the retail amount of the certificates or a fixed dollar amount, based on the number of sales of the certificates. For example, for a certificate which sells for $29.99, the retailer may receive a 10% rebate. If the contents of the certificate were enhanced and the certificate was thus to sell for $39.99, then the rebate percentage may be increased to 20%. The rebate is used as a sales incentive to encourage the retailer to enter into agreement with [Corporation A].
SpaCo
10. SpaCo has [...] locations in [Participating Province X]. The SpaCo certificate lists the discount provisions and contains a list of services provided at SpaCo. The certificate has a value of over $[...] and sells for $79.99. It has three components:
• A Facial and [...] Application: Free [...] minute Facial, maximum value $[...]. Includes free [...] minute [...] Application value at $[...]. Offer allows the following upgrades with visit:
1. Upgrade to a [...] minute Facial for only $[...]
2. $[...] Off Deluxe [...] Facial
3. Upgrade [...] Facial to [...] minutes for $[...] or [...] minutes for $[...]
4. Receive [...]% Off Skin Care Products
• Skin Treatment: Free medical skin treatment value at $[...]. Offer allows the following upgrades with visit:
1. Book [...] additional skin treatments for only $[...]
2. Receive [...]% off any waxing service
3. Receive [...]% off of any manicure and pedicure
• Eye [...] Treatment and Massage: Free [...] minute eye [...] treatment, value $[...], plus free [...] Minute massage, value $[...]. Offer allows the following upgrades with visit:
1. Upgrade to an [...] facial for only $[...]
2. Add a body wrap with the massage for only $[...]
3. Upgrade the massage to [...] minutes for only $ [...] or [...] minutes for only $[...]
11. The certificate lists a number of terms and conditions which include the following: gratuity is suggested; offers valid for one package reduction per day; services must be booked by appointment; and identify yourself as a certificate holder when booking appointment.
12. The certificate states that [Corporation A] and its affiliates serve as the marketing and distribution agent for this program. The offers and promotions presented in this certificate are those of the SpaCo and not [Corporation A]. [Corporation A's] liability is limited to the purchase price of this Certificate.
13. The Promotional Agreement used for SpaCo is the same as that used for RestaurantCo, except that there is no Addendum, [...] attached.
DinerCo
14. DinerCo has [...] location in [Participating Province X]. The DinerCo certificate sells for $10.99 and offers savings worth over $[...]. The certificate features information about the location and a sample menu and contains perforated coupons for the following meals:
• [...] vouchers for Free Food Product. Receive a free food product with the purchase of a drink and a bag of chips or 2 cookies. Limited to one free redemption per day. Maximum value $[...]
• [...] vouchers for a Free Food Product (small size). Same conditions as above except the maximum value is $[...].
• [...] vouchers for Free Menu Item of your choice Buy One, Get One. Receive one free menu item when a second menu item of equal or greater value is purchased at regular price. Limited to one redemption per day. Maximum value $[...].
• Home or Office Food Platter Special Receive [...]% off entire order up to a maximum of $[...]. Must be ordered in advance and not combined with other offers. A minimum order of 1 Food Platter is required. Maximum value $[...]
• The reverse of each voucher contains the following information: Valid at participating locations only, not for delivery. Maximum one "Buy One, Get One" discount per visit. Discounts are based on regular price. Expiration date is given.
• The certificate also contains (in part) the following: [Corporation A] and its affiliates serve as the marketing and distribution agent for this program. The offers presented in this certificate are those of the respective Advertiser and not [Corporation A]. [Corporation A's] liability shall be limited to the purchase of this certificate.
WaterCo
15. WaterCo has [...] location in [Participating Province X]. The WaterCo certificate sells for $11.99 and offers savings worth over $[...]. The certificate features information about the location and contains perforated coupons for the following admissions for the current season:
• [...] vouchers for $[...] Off General Admission Pass Voucher allows $[...] off a general admission [...] park day pass for up to [...] people. Maximum value: $[...].
• [...] vouchers for Free [...] Pass Buy One, Get One. Purchaser receives one free [...] pass when a [...] day pass is purchased at regular price. Maximum value: $[...]/pass
• [...] vouchers for [...]% Off [...] and [...] Regular Day Pass Purchaser will receive [...]% off a [...] park day pass during the above months, for up to [...] people. Maximum value: $[...] ($[...]/ pass)
• [...] vouchers for Free Popcorn Purchaser will receive one free popcorn with the purchase of a general admission [...] Ticket, for up to [...] free popcorns Maximum value: $[...] ($[...]/popcorn)
• The back of all vouchers contains (in part) the following wording: valid only at this location. Card must be presented. Discounts are based on regular prices. Some restrictions may apply. Cannot be combined with other discounts or promotions. Expiration Date is given.
• The certificate also contains the same information regarding [Corporation A's] liability as the other certificates above.
AmusementCo
16. AmusementCo has [...] location in [Participating Province X]. The AmusementCo certificate sells for $11.99 and offers savings worth over $[...]. The certificate features information about the location and admissions and contains perforated coupons for the following admissions valid for the current season:
• [...] vouchers for Save $ [...] Single Admission Passes Receive up to [...] single day passes at the discounted rate of $[...]/pass. Not valid for [...]. Maximum savings: $[...]/coupon($[...]/pass)
• [...] Admission Passes Receive up to [...] admission passes at the discounted rate of [...]/pass. Visits must be redeemed by the same person, but not on consecutive days. Not valid for [...]. Maximum savings: $[...]/coupon ($[...]/pass)
• Free [...] Admission Pass Buy One, Get One. Receive one free [...] admission pass when a second [...] pass is purchased. Not valid for [...]. Maximum savings: ($[...]/pass)
• [...]Spectacular On selected days in [...] receive up to [...] single day passes at the discounted rate of $[...]/pass. Not valid for [...]. Maximum savings: $[...]/coupon ($[...]/pass)
• [...] Special Receive $[...] off up to [...] admissions for [...] Special on selected days in [...] and [...]. Maximum Savings: $[...]/coupon ($[...]/pass)
• The back of the vouchers listed further conditions. Those common to most are as follows:
Entire card must be presented to receive offers,
Unlimited coupons can be redeemed per visit,
All discounts are based on regular admission pricing and subject to change,
Not to be combined with any other discount promotion or coupon,
Limit [...] certificates per customer.
• The certificate also contains the same information regarding [Corporation A's] liability as the other certificates above.
Ruling Requested
[Corporation A] is requesting a ruling on the applicability of GST/HST on the retail value of its certificates.
Ruling Given
Based on the facts set out above, we rule that the value of the consideration upon which GST/HST must be accounted for is based on the retail price of the certificates: RestaurantCo ($19.99) SpaCo ($79.99) DinerCo ($10.99) WaterCo ($11.99) and AmusementCo ($11.99).
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
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. Subsections 165(1) and 165(2) of the ETA provide that the recipient of a taxable supply is required to pay tax on the value of the consideration for the supply. The value of the consideration for a supply is generally expressed in money but where it is other than money, it is the fair market value of that consideration at the time the supply is made.
The GST/HST treatment of promotional certificates depends on the terms of the particular agreements between the parties and whether the certificate is a coupon or gift certificate.
Section 181 provides rules pertaining to coupons that offer price discounts. For purposes of section 181, a "coupon" includes a voucher, receipt, ticket or other device but 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.
Under section 181.2, the sale or issuance of a gift certificate is deemed not to be a supply. When it is subsequently exchanged for a supply of a good or a service, it is treated as part or all of the consideration for the supply.
According to the information provided, the certificates supplied by [Corporation A] do not meet the criteria for a gift certificate described above. Rather, the certificates entitle the purchaser to monetary discounts and offer items for no charge if another item is purchased; therefore, the certificates are not considered to be gift certificates.
A coupon generally reduces the price for a supply of property or service. Section 181 describes the tax treatment of three types of coupons; reimbursable, non-reimbursable and other coupons.
Subsection 181(2) applies to "reimbursable coupons" which entitle the recipient of a taxable (other than zero-rated) supply to a reduction in price equal to a fixed dollar amount specified in the coupon and the registrant supplier who accepts the coupon can reasonably expect to be paid an amount by another person for the redemption. As the retailer who accepts the certificates will not be paid an amount by another person ([Corporation A]), the certificates are not "reimbursable coupons".
Subsection 181(3) applies to "non-reimbursable coupons" that entitle the recipient of a taxable supply (other than a zero-rated supply) to a reduction in the price of the supply equal to a fixed dollar amount or fixed percentage amount specified in the coupon and the registrant supplier who accepts the coupon can reasonably expect not to be paid an amount by another person for the redemption. As the certificates do not offer a reduction equal to fixed dollar amount or fixed percentage amount, the certificates are not considered to be "non-reimbursable coupons" under subsection 181(3).
A certificate that entitles a person to buy-one get-one when the certificate-holder purchases a full price meal or service or to receive more than one monetary discount would generally qualify as a coupon subject to the treatment outlined under subsection 181(4) each time the certificate is accepted by a registrant retailer. As the certificates contain more than one monetary discount and offer items for no charge if another item is purchased, the certificates are coupons which are subject to the provisions in subsection 181(4).
Subsection 181(4) provides that where a registrant retailer accepts, in full or partial consideration for a supply of property or a service, a coupon that may be exchanged for the property or service or that entitles the recipient to a reduction of, or a discount on, the price of the property or service and paragraphs 181(2)(a) to (c) do not apply, the value of the consideration for the supply is deemed to be the amount, if any, by which the value of the consideration for the supply exceeds the discount or exchange value of the coupon. In other words, these coupons reduce the selling price of an item before the GST/HST is added.
If it were determined that the certificates were gift certificates, then under section 181.2, the sale or issuance of the certificates would be deemed not to be a supply. However, the certificates have been determined to be coupons which are not subject to any deeming provisions when sold for consideration. Therefore, the certificates will be subject to GST/HST based on the value of the consideration given for the certificate.
ADDITIONAL INFORMATION
Under certain Promotional Agreements, [Corporation A] agrees to pay a retailer an amount as a sales incentive in return for the retailer agreeing to offer consideration that significantly enhances the retail appeal of the [Corporation A] certificate. As there are no provisions under the ETA to exempt or zero-rate this payment, a registrant retailer will be required to collect and remit tax on that amount as it is consideration for a taxable supply.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (902) 426-6940. 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,
Nancy Jardine
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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