26 September 2005 GST/HST Interpretation 63001 - GST/HST implications of an online 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 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a particular coupon program used by your client, XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

We understand from your letter and its attachments the following:

1. XXXXX is a partnership that is registered for GST/HST purposes XXXXX.

2. On XXXXX entered into an agreement (the Agreement) with XXXXX. In essence, the Agreement permits customers purchasing XXXXX, which is provided to such customers XXXXX. The voucher is redeemable at XXXXX.

3. The values of the vouchers are based XXXXX purchased by the customer. XXXXX the Agreement describes the value of the voucher as follows:

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

4. Thus, the maximum value of any given voucher is $XXXXX. A customer, to qualify to receive a voucher, must purchase XXXXX, thereby dictating the value of the voucher.

5. The value of the voucher is used by the customer as a reduction in the price of the total value of their purchases at XXXXX and not for a specific item. That is, customers may use the vouchers to reduce the total price on purchases of taxable supplies, XXXXX.

6. Under XXXXX the Agreement, XXXXX will credit the corresponding retail value of the voucher against the XXXXX. The XXXXX for record keeping purposes. By virtue of XXXXX the Agreement, all voucher redemptions completed by XXXXX.

7. The Agreement provides that XXXXX will reimburse an amount to XXXXX for a portion of the price reductions extended to purchasers who present their vouchers at XXXXX. Pursuant to XXXXX the Agreement, the reimbursements made by XXXXX share of total dollar value of vouchers redeemed.

8. XXXXX the Agreement states that, XXXXX of the Agreement in total aggregate amounts for all XXXXX the Agreement states that XXXXX acknowledges that the redemption costs paid to XXXXX constitute payment in full to XXXXX for the redeemable value of the vouchers issued by XXXXX.

9. XXXXX is not a prescribed registrant for purposes of subsection 188(5) of the ETA, nor is any part of the voucher value an amount of an adjustment, refund or credit to which subsection 232(3) of the ETA applies.

Ruling Requested

You would like to know the following:

1. Whether section 181 applies to the vouchers redeemed as per the conditions in the Agreement XXXXX between XXXXX and XXXXX, and

2. Where XXXXX reimburses XXXXX a partial amount for the redemption of vouchers, XXXXX is eligible to claim an input tax credit (ITC) equal to the tax fraction of the coupon value. For purposes of claiming this ITC, the voucher value would be the amount of the price reduction extended to XXXXX with respect to taxable supplies made by XXXXX.

Ruling Given

Based on the facts set out above, we rule that:

1. The vouchers issued by XXXXX and redeemed by XXXXX are coupons as defined in subsection 181(1) of the ETA.

2. When the voucher is accepted by XXXXX as full or partial consideration for a taxable supply that XXXXX, the provisions of subsection 181(2) of the ETA apply. Where any transaction XXXXX and the coupon is redeemed, section 181 of the ETA does not apply.

3. Where XXXXX reimburses XXXXX an amount for the redemption of the vouchers, XXXXX is eligible to claim an ITC where that particular voucher was used in the purchase of a taxable supply XXXXX.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. 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

Subsection 181(1) of the ETA defines "coupon" to include a voucher, receipt, ticket or other device but does not include a gift certificate or a barter unit within the meaning of section 181.3 of the ETA. The vouchers issued by XXXXX fit within this definition.

Subsection 181(2) of the ETA applies to reimbursable coupons provided that the coupon contains and demonstrates specific characteristics. Basically, a reimbursable coupon must entitle the purchaser of a taxable supply (other than a zero-rated supply) to a reduction in price equal to a fixed dollar amount, which is specified on the coupon. In addition, the registrant supplier who accepts the coupon can reasonably expect to be paid an amount for the redemption (i.e., for accepting the coupon from the recipient) by a third party.

Coupons that offer variable monetary discounts or allow a number of potential monetary discounts, rather than a specific single monetary amount do not meet the criteria of subsection 181(2) of the ETA. In the case at hand, the vouchers issued by XXXXX have a specific single redemption value. The value of each particular voucher is XXXXX. Thus, the voucher has one specific single monetary amount (i.e. redemption value) based XXXXX and therefore, subsection 181(2) of the ETA would apply to this type of coupon at the point of redemption.

A coupon that falls within subsection 181(2) of the ETA is treated as a voucher that includes GST/HST. Where the third party XXXXX is a registrant who reimburses the supplier XXXXX an amount for the redemption of the coupon (used on taxable purchases, XXXXX, the third party will be able to claim an ITC equal to the tax fraction (e.g. 7/107ths) of the discount value of the coupon.

Please be aware that one must retain acceptable documentary evidence that a coupon was XXXXX. Our audit program determines whether certain documentary evidence is sufficient.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-0328.

Yours truly,

Collin Baird
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2005/09/01 — RITS 63026 — [Entitlement to ITCs in Respect of Property or Services Acquired for the Purpose of Improving Capital Real Property]