20 November 2007 GST/HST Interpretation 90956 - Policy Statement P-248, Example 6

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.

We are writing in response to XXXXX concerning the application of section 181.1 of the Excise Tax Act (ETA) and the definition of "rebate" for purposes of that section.

The facts XXXXX were as follows:

•   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 price reductions, referred to as "instant rebates", to its customers. The price reductions are a specified dollar amount discount given on the specified products sold at the retailer's stores during designated campaign periods.

•   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 refers to the temporary price reductions as "instant rebates" 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 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.

XXXXX

Meaning of "rebate"

XXXXX with the guidelines established in GST/HST Memorandum 300-7-6, Manufacturers' Rebates. Paragraph 8 of the Memorandum states as follows:

… [section 181.1] ^[iii]footnote 1 applies where a supplier (e.g., a manufacturer or other third party) pays a rebate to a person where that person acquires the supply directly from the supplier or from another person such as a retailer.

The reference in paragraph 8 to "the supplier or ... another person such as a retailer" suggests that a "supplier" in the context of paragraph 8 is, as stated in the parentheses, a person such as a manufacturer. XXXXX the question you raise with respect to paragraph 8 is whether the supplier/manufacturer XXXXX could be considered as having paid a rebate to the customer, albeit through the retailer.

XXXXX However, GST/HST Guide RC4022, General Information for GST/HST Registrants^[iv]footnote 2 (excerpt enclosed), provides some additional direction. The Guide states that the GST/HST rules stipulated in section 181.1 for manufacturers' rebates apply when:

•   a customer purchases taxable goods or services and then claims a manufacturer's rebate for that purchase;

•   the supply of those goods or services to the customer is made either directly by the manufacturer or by another person such as a retailer; and

•   the customer receives a rebate from the manufacturer for purchasing the goods or services, and is made aware in writing that the rebate includes GST/HST.

The Guide also provides two examples that demonstrate the potential application of section 181.1. The first involves mail-in battery rebates paid to a customer directly from the manufacturer, while the second involves a rebate received by a customer from a car manufacturer through a retailer who reduces the total amount payable by the amount of the rebate. Although not overtly stated in the Guide, it must be assumed for the purposes of both of these examples that the rebate is paid under a specific arrangement between the manufacturer and the customer. This is clear in the first example since the mail-in rebate is made directly from the manufacturer to the customer without any direct involvement on the part of the retailer. However, it is less clear in the second example: absent an agreement to the contrary, the transaction may be construed as a point-of-sale discount XXXXX.

XXXXX, the ETA does not provide a definition of the word, "rebate" for purposes of section 181.1. XXXXX, a "rebate" for purposes of paragraph 8 of the aforementioned Memorandum is defined at paragraph 7 as "… a partial refund of the consideration paid for a supply."

XXXXX, it will be essential to determine the type of arrangement that a supplier has with its retailer. One cannot assume that a particular monetary transfer from a supplier to a retailer must in turn be transferred to the customer as a manufacturer's rebate unless there is evidence supporting a contractual obligation or commitment on the part of the retailer to do so.

In all cases, then, the existence or non-existence of a rebate is necessarily a question of fact, as supported by written agreements or other evidence of the arrangement in question. Such evidence may take the form of books and records that would enable CRA to make a determination that a price reduction given to the consumer by the retailer occurs as a result of a manufacturer's rebate. In the absence of such evidence, it would remain difficult to conclude that the amount transferred by the supplier/manufacturer is a rebate.

Operation of section 181.1

XXXXX, you also pose questions concerning the operation of section 181.1 in cases where a supplier pays an amount qualifying as a rebate to a customer that is administered by the retailer at the point of sale (such as in the second example in the Guide). You ask:

•   Since this would be a two-part transaction, how would the supplier/manufacturer know when to claim an input tax credit ("ITC") with respect to the rebate?

•   How is the reimbursement from the manufacturer to be accounted for by the retailer?

Section 181.1 states, in part, as follows:

Where

(a) a registrant makes a taxable supply in Canada of property or a service (other than a zero-rated supply),

(b) a particular person acquires the property or service, either from the registrant or from another person,

(c) the registrant pays, at any time, a rebate in respect of the property or service to the particular person and therewith provides written indication that a portion of the rebate is an amount on account of tax, and

(d) subsection 232(3) does not apply to the rebate,

the following rules apply:

(e) the registrant may claim an input tax credit for the reporting period of the registrant that includes that time equal to the ... tax fraction ^[v]footnote 3 in respect of the rebate…

In response to your questions, the retailer would, at the point of sale, charge tax on the full consideration payable by the customer (i.e., without deducting the amount in respect of the rebate) pursuant to section 165.  The customer may then apply the rebate received from the supplier/manufacturer against the sale made by the retailer such that the amount of the rebate is treated as a partial payment for the supply made by the retailer.

Subject to paragraph 181.1(e), the supplier/manufacturer may claim an ITC in respect of the rebate as long as it indicates to the customer in writing that the rebate includes an amount on account of tax. Where the rebate is paid to the customer at the point of sale, the written indication must be provided at that time pursuant to paragraph 181.1(c). Where the retailer administers the rebate program pursuant to an agreement with the supplier/manufacturer, the written notification may, in practice, be provided by the retailer on behalf of the supplier. ^[vi]footnote 4

Where the supplier/manufacturer reimburses the retailer for the rebates that the retailer provided to the customers on behalf of the manufacturer, there are no GST/HST consequences in respect of that reimbursement. We note, however, that any amounts transferred that are in excess of the rebate reimbursement may be viewed as consideration for a supply, depending on the circumstances of the particular transfer.

I hope that this will be of some assistance. If you require further information or clarification please contact me at (613) 952-8816.

2007/10/29 — RITS 94919 — [Application of the GST/HST to Food Pre-packaged by the Manufacturer in Six Single-Serving Containers]