28 January 2005 GST/HST Ruling 55951 - Tax Status of 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:

This letter is in response to a request by XXXXX the XXXXX Tax Services Office to provide an interpretation to you concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to point of sale instant rebate transactions.

Background Information

As we understand it:

•   XXXXX (the "retailer") enters into informal arrangements with a number of its suppliers. The arrangements provide that the suppliers will pay amounts to the retailer to promote specified products purchased from the suppliers by the retailer for resale. In return for the payments, the retailer offers point of sale instant rebates (i.e., a specified dollar amount discount) to purchasers of the specified products that are sold at the retailer's stores, during designated campaign periods (i.e., the payments to the retailer by the suppliers under the arrangements are for a temporary price reduction program).

•   The payments made by the suppliers to the retailer are equal to the total amount of the price reductions given during the designated campaign period and there is no written indication by the suppliers that the payments include an amount on account of GST/HST.

•   The retailer visibly displays the temporary price reductions as instant rebates that reduce the specified product's price, in its store pricing exhibits and advertisements.

•   There is no indication that the price reductions given to the retailer's customers include an amount of GST/HST or that the price reductions stem from any obligation or commitment on the part of the suppliers to provide rebates directly to the purchasers (i.e., manufacturer's rebates).

•   There is no indication that the price reductions are electronic coupons offered by the suppliers for which the retailer is reimbursed.

•   At the point of sale, the retailer has been collecting GST/HST based on the specified product's price after the application of the price reduction.

Interpretation Requested

Can the retailer deduct the amounts identified as instant rebates from its regular selling price before calculating and collecting GST/HST in respect of taxable supplies of the specified products?

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 by 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, such as New Brunswick, recipients are required to pay an additional amount of tax, which results in a rate of 15% for the HST.

Generally, where an amount is paid by a supplier to a retailer to promote the supplier's product by temporarily reducing the retailer's selling price of that product for a designated campaign period, the amount is a promotional allowance for the purposes of section 232.1 of the Excise Tax Act (the "ETA"). As such, the amount of the promotional allowance is not consideration for a supply made by the retailer to the supplier. However, given that the amount of the promotional allowance is paid otherwise than as a discount or credit against the price of the product provided by the supplier, the promotional allowance is deemed, under paragraph 232.1(e) of the ETA, to be a rebate for purposes of section 181.1 of the ETA. Therefore, the supplier has the option of indicating in writing to the retailer that a portion of the promotional allowance includes an amount on account of GST/HST. Based on the facts above, the retailer is not required to account for GST/HST in respect of the promotional allowances, as the suppliers have not provided any written indication that the allowances include GST/HST.

With respect to the price reduction offered by the retailer at the point of sale, the amount of the reduction is deducted from the regular selling price of the product before calculating the GST/HST payable in respect of the sale of that product, even if the retailer identifies the price reduction to the purchaser as an "instant rebate". In other words, the GST/HST applies on the value of the consideration for the supply made by the retailer i.e., the reduced selling price.

A number of different types of transactions can occur at the point of sale with varying GST/HST consequences (e.g., coupons, including reimbursable electronic coupons, manufacturer's rebates, point of sale discounts, etc. ...). It is a question of fact as to the nature of the transaction(s) that occurs at the point of sale. For example, an amount identified as an "instant rebate" where the amount is subsequently paid to the retailer by the supplier could be an amount resulting from an electronic vendor funded coupon (i.e., a reimbursable coupon) or an instant manufacturer's rebate offered by the supplier to the purchaser and administered by the retailer on the supplier's behalf. In these cases, at the point of sale, the GST/HST would be calculated by the retailer on the regular selling price prior to taking the "instant rebate" into account.

Pursuant to subsection 286(1) of the ETA, both the retailer and the supplier must maintain books and records to enable the determination of each person's liabilities and obligations under the ETA, as well as, any refund or rebate entitlements. Given the tax implications, it is imperative that the parties maintain adequate documentation of the transactions involved and are consistent in their handling of the transactions to ensure that their obligations and entitlements are determined in accordance with the facts.

The foregoing comments represent our general views with respect to the treatment of instant rebates. 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 Chapter 1.4 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 Chapter 1.4 of the GST/HST Memoranda Series and GST/HST Policy Statement P-243 Promotional Allowances.

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

2005/02/25 — RITS 56925 — Application of Section 181 of the Excise Tax Act to Electronic Coupons