PC Bank – Tax Court finds that loyalty points were redeemed by a credit card issuer in the course of its financial services business so that no ITCs were available

The PC Bank case, which was released with the CIBC case, addressed two additional issues.

The first issue dealt with loyalty points that PC Bank essentially was paid by Loblaw to issue to PC Bank credit cardholders (based on their purchases at Loblaws’ stores), with PC Bank then being obligated to redeem those points in the hands of Loblaws when the points were used by the cardholders at Loblaws’ stores. Hogan J found that PC Bank could not claim input tax credits based on the amount of points redemption payments made by it to Loblaws, because it did not satisfy the requirement in ETA s. 181(5) that such amounts be paid “in the course of a commercial activity” of PC Bank. Hogan J (who was dismissive of the relevance of some taxable amounts charged by PC Bank to Loblaws in connection with the redemptions) stated:

PC Bank issued the PCB Points to generate revenue from its PC MasterCard portfolio. PC Bank earned significant revenue from interchange fees that pales in comparison to the minimal revenue it received from Loblaws. …

There is a direct link between the PCB Points that are issued in conjunction with an exempt financial service supplied by PC Bank to Cardholders and an expense that is paid when the PCB Points are redeemed by Cardholders.

Second, Hogan J characterized supplies made to PC Bank by a supplier and its successor as follows:

The main service offered by FDR/TSYS was the automated management and authorization of credit in real time, on behalf of PC Bank, based on the parameters and protocols established by PC Bank. These protocols included measures designed to detect credit fraud and to ensure that the terms and conditions under which PC Bank wishes to grant a credit card loan to a Cardholder are satisfied. All of this is done to avoid loan losses for PC Bank.

In finding that such supplies were excluded from being financial services by para. (r.3) of the financial services definition, Hogan J stated (at paras. 141):

The language of paragraph (r.3) indicates that “managing credit” is broader in scope than what may be commonly understood by that expression. …

Neal Armstrong. Summaries of President's Choice Bank v. The Queen, 2022 TCC 84 under ETA, s. 181(5), and s. 123(1) financial service – para. (r.3) and para. (t).