17 May 2004 GST/HST Ruling 49728 - Sales of Real Property by the Estate XXXXX

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations.

A GST/HST ruling provides the Canada Revenue Agency's position on specific provisions of the Excise Tax Act (ETA) as they relate to a clearly defined fact situation of a particular person. The Canada Revenue Agency (the CRA) is unable to provide a ruling when there are, such as in your case, alternative courses of action that can be taken by a registrant. Consequently, we have provided 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.

All legislative references are to the ETA and the Regulations therein, unless otherwise stated.

Background

XXXXX a non-transferable card that entitles the cardholder to a discount of XXXXX% off the price XXXXX. The cardholder must present the card XXXXX at the time the cardholder places the order. XXXXX card.

XXXXX. Therefore if a cardholder purchases XXXXX $XXXXX and presents their card, the cardholder is currently charged HST of $XXXXX and pays $XXXXX for their XXXXX.

Interpretation Requested

You enquire whether XXXXX should calculate the HST based on the value of the consideration for XXXXX before or after deducting the value of the discount when the XXXXX card is presented by the cardholder and accepted by the registrant?

Interpretation Given

Every recipient of a taxable supply, other than a zero-rated supply (taxable at 0%), made in Canada is required to pay GST at the rate of 7% on the value of the consideration for the supply. The person making the supply is required to collect the tax payable from the recipient, as agent of Her Majesty in right of Canada. Where a taxable (other than zero-rated) supply is made in a participating province, XXXXX, the supply is subject to HST at the rate of 15%.

Consideration generally means the price paid for a supply of property or service. Where the consideration is expressed in money, the amount of the money is treated as the value of the consideration. A coupon generally reduces the price for a supply of property or service. Section 181 provides rules pertaining to coupons that offer price discounts.

Section 181 defines a coupon to include a voucher, receipt, ticket or other device but does not include a gift certificate or a barter unit. A discount card entitling a cardholder to XXXXX% off XXXXX would generally qualify as a coupon each time the card is accepted by a registrant supplier (retailer).

Subsection 181(3) applies to "non-reimbursable coupons" that entitle the recipient (customer) 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. These are commonly referred to as retailer coupons. The coupon is termed "non-reimbursable" as the retailer is not paid an amount by another person for that other person's redemption of the coupon. The retailer is the person issuing the coupon and accepting the coupon from the customer.

Where such a non-reimbursable coupon is accepted, the retailer has the option of treating the coupon as GST/HST included or they may choose to consider the coupon as GST/HST excluded.

If the retailer includes the GST/HST in the value of the coupon, the retailer treats the coupon as a partial cash payment and calculates the GST/HST payable on the supply before deducting the value of the coupon. (For example purposes, assume the supply is taxable at 15% HST.)

Example A

When the retailer prepares their GST/HST return, they will calculate the tax collected without taking the value of the coupon into account ($XXXXX as illustrated above). The retailer will also be entitled to an input tax credit based on 15/115 of the coupon value (the amount of tax included in the coupon). In this case the input tax credit would be $XXXXX ($XXXXX x 15/115). The input tax credit can be claimed when the retailer files their GST/HST return for the reporting period in which the retailer accepted the coupon. The amount of HST remitted by the retailer would be $XXXXX ($XXXXX - $XXXXX).

Alternatively, where the retailer chooses to issue coupons on a GST/HST excluded basis, the retailer will treat the coupon it issues as a reduction in the amount charged for the supply and on which GST/HST is calculated at the time of the sale, as illustrated in Example B. (For example purposes, assume the supply is taxable at 15% HST.)

Example B

Therefore, the retailer will deduct the value of the coupon from the selling price prior to calculating any GST/HST payable. When the retailer prepares their GST/HST return, the tax collected and remittable is $XXXXX. The retailer is not entitled to claim an input tax credit with respect to the coupon that was accepted, as the coupon does not include an amount in respect of tax.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-954-7945.

Yours truly,

Susan Mills
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

XXXXX

2004/04/01 — RITS 50532 — [Zero-rated Supply of Single Serving XXXXX Bars]