3 December 2007 GST/HST Interpretation 90865 - Travel Agency

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 marketing plan. It has been forwarded to us for a response.

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

Effective January 1, 2008, the rate of the GST will be reduced from 6% to 5% and the rate of the HST from 14% to 13%. The new rates will apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules will apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, Proposed GST/HST Rate Reduction in 2008 on the CRA Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

1. XXXXX (the Corporation) is registered for GST/HST purposes under Business Number XXXXX.

2. The Corporation has developed a XXXXX Program for the production and administration of XXXXX Certificates that participating retailers can give to their customers for no charge.

3. A retailer who enters into a written XXXXX Agreement with the Corporation acquires the non-exclusive right from the Corporation to participate in the Program and to use the Corporation's Certificates, business format and methods.

Certificates Provided to Participating Retailers

4. The Corporation provides Certificates to the participating retailer to assist the retailer in selling certain products. The participating retailer determines the face value of the Certificate acquired from the Corporation. However, the face value cannot be less than $XXXXX and it cannot exceed XXXXX% of the retailer's price for the particular product including taxes. The maximum face value of a Certificate is $XXXXX.

5. The Corporation charges the participating retailer an amount equal to XXXXX% of the face value of the Certificate. Of the amount charged for the Certificate, the Corporation allocates XXXXX% to a monthly pool administered by a bank as the trustee pursuant to clause XXXXX of the Agreement. The funds in the pool are conservatively invested. The remaining XXXXX% of the amount charged is retained by the Corporation as its fee charged to the retailer.

6. The participating retailer offers the Certificate to its customers for no charge. The Certificate is considered to be a promotion of the retailer or a gift from the retailer to its customer.

Redemption of Certificates

7. A certificate is redeemable XXXXX years after its issuance.

8. The following steps must be taken before a customer is eligible to receive cash on the redemption of a Certificate:

•   the participating retailer must activate the Certificate with a code obtained from the Corporation;

•   the customer must obtain a confirmation code from the Corporation within XXXXX days of the issuance of the Certificate;

•   the customer must obtain a claim code from the Corporation within XXXXX days after the XXXXX of the issuance of the Certificate;

•   the customer must send the original Certificate, proof of purchase and proof of payment to an address designated by the Corporation within XXXXX days after the XXXXX of the issuance of the Certificate.

9. The Corporation is the final arbitrator in all matters regarding Certificates and is solely responsible for payments to the customers.

10. The funds received by customers will depend upon the sum of the funds in the monthly pool at the time the customer is able to redeem the certificate. Where the funds in the pool are greater than the cash value of Certificates presented for payment, the customer will receive the maximum authorized amount stated on the Certificate. Where the funds in the pool are less then the cash value of the Certificates presented for payment, the customer will receive proportionately less than the maximum amount stated on the Certificate.

Other Terms and Conditions

11. Pursuant to XXXXX of the Agreement, the Corporation also provides sales brochures, and instruction and training to the participating retailer. The Corporation maintains customer support personnel and settles a trust fund with a bank to receive funds from the retailer less administration costs charged by the Corporation.

12. XXXXX of the Agreement provides the participating retailer with the right to use the Corporation's trademarks in promoting the Program.

13. XXXXX of the Agreement prohibits the participating retailer from dealing with any of the Corporation's competitors during the term of the Agreement.

Ruling Requested

You would like to know:

1. the tax status of the Certificates supplied by the Corporation to participating retailers;

2. the value of the consideration for such supplies;

3. whether the Corporation is eligible to claim input tax credits (ITCs) for tax paid on its expenses related to providing such supplies to the participating retailers; and

4. the tax consequences when a consumer redeems a Certificate and whether the Corporation is eligible to claim ITCs for tax paid or payable on expenses related to the redemption process.

Ruling Given

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

1. with respect to the Certificates, the Corporation is making taxable supplies of intangible personal property to the participating retailers;

2. the value of the consideration for such taxable supplies and on which the Corporation is required to charge the GST is the full fee of XXXXX% of the face value of the Certificates charged by the Corporation to the participating retailers; and

3. the Corporation is eligible to claim ITCs for tax paid on its expenses related to the supply of the intangible personal property.

4. there are no tax consequences when a consumer redeems a Certificate. The redemption process is part of the agreement between the Corporation and the participating retailer and is an element of the supply of the intangible personal property made by the Corporation to the participating retailer.

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 (613) 954-7931. 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,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/11/29 — RITS 90125 — Registered Tour Operator