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: 138563
Business Number: [...]
October 24, 2011
Dear [Client]:
Subject:
GST/HST RULING
[...] [Sale of] Gift Cards
Thank you for your letter of August 31, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to [...] gift cards (the "gift cards").
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 incoming letter, our telephone conversation on October 20, 2011 and the provided examples of the gift cards, we understand the following:
1. [...] (RetailerCo) is a retailer and is registered for GST/HST purposes with Business Number [...].
2. Customers are able to purchase the gift cards at RetailerCo store locations across Canada.
3. The gift cards range from a variety of romance, pampering, family fun and adventure life experiences across Canada such as: golf, spas, water parks, hotels, resorts, restaurants, rides, race car experiences and in-home chefs.
4. The gift cards are priced accordingly and the amount charged by RetailerCo is the price as stated on the gift card package.
5. [...] examples of the front and back of the gift card packages and attached gift cards were enclosed for our review. They are for a variety of experiences such as overnight packages at hotels and country inns, dinning packages, spa treatments, and admission to sport and amusement parks at locations across Canada. The details of three representative samples are provided below.
6. The first includes one night's accommodation for two at an inn, a bottle of wine and a breakfast for two. The gift card holder must contact the inn to book the reservation, identify the gift card package, quote the number on the gift card and present the $[...] gift card as the method of payment.
7. The next sample can be redeemed at a number of spa resorts across Canada. The package includes services which focus on health, wellness and professionalism. The selected establishment must be called to book an appointment and the $[...] amount on the gift card will be used towards the cost of the reservation.
8. The third sample can be redeemed towards a reservation at a variety of white water rafting locations across Canada. The selected establishment must be called to book a reservation and the $[...] gift card must be presented at time of use.
9. The terms and conditions are on the back of the gift card package and contain (in part) the following provisions: Gift card is a one-time use card. The card is transferrable but not replaceable if lost or stolen and should be treated as cash. Card is subject to expiration date, if any, given on card. Card can be redeemed only at participating establishments. Total value of the card must be redeemed at a single establishment. Any unused balance will be converted to credit at participating establishment.
10. The gift card may be purchased as a gift, i.e., it is transferrable.
11. The steps required to redeem the gift card are, in general, the same but have some differences. For example:
• a customer must call a lodge to book the reservation; identify that he/she is booking a gift card package; quote the number on the back of the gift card; and present the package and the attached gift card to the lodge;
• a customer must select a particular golf course; call the golf course to book his/her tee time; and quote the number on the back of the gift card to complete the reservation; and present the package and attached gift card to the golf course.
12. The gift cards are sold to RetailerCo by a third party distributor, who invoices RetailerCo for the gift cards purchased.
13. The gift cards have no intrinsic value.
Ruling Requested
You would like a ruling on the applicability of the GST/HST to the sale of the gift cards as described above.
Ruling Given
GST/HST should not be charged to customers on the sale of the gift cards as they are considered to be gift certificates for the purposes of section 182.1.
Explanation
The GST/HST treatment of any of the above gift cards depends on the terms of the particular agreement between the parties and whether the gift card 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.
Section 181.2 provides that, for GST/HST purposes, the issuance or sale of a gift certificate (including a gift card that meets the criteria 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. The fact that a gift certificate may be transferred or resold does not change the characterization of the device as a gift certificate for purpose of 181.2. Therefore, no GST/HST should be charged to customers on the sale of the gift cards that are considered to be gift certificates.
At the time of redemption, a gift certificate is treated as money that is given as full or partial payment towards the purchase of the goods or services. Therefore, a GST/HST registrant merchant of a particular establishment who accepts a gift certificate as a method of payment is required to account for the GST/HST payable by the customer on the value of the consideration charged in respect of the taxable supply (other than zero-rated) of their goods or services.
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.
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.
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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