17 May 2007 GST/HST Interpretation 81706 - XXXXX GST/HST Visitor Rebate on Short-term Accommodation

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 XXXXX and subsequent telephone conversations concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to gift certificates purchased and sold by your company. Your message was forwarded to this office for direct reply.

Statement of Facts

1) XXXXX (hereinafter referred to as ABC Co.) is a GST/HST registrant.

2) ABC Co. specializes in the purchase and sale of devices that it refers to as gift certificates.

3) ABC Co. purchases from retailers traditional paper gift certificates. The purchase price is less than the face value of the gift certificate. The gift certificate may be used as money to purchase goods/services at the issuing supplier and does not have any intrinsic value outside of its exchange value.

4) The gift certificates are subsequently sold to non-profit organizations for a price that is in excess of the price paid by ABC Co. but less than the face value of the gift certificates.

5) Shipping charges are billed to the customer as a separate line item on the invoice.

6) Sales orders that do not reach a threshold amount attract a minimum order fee. This fee is the difference between the total of the certificates ordered and $XXXXX. This minimum order fee is charged as a separate line on the invoice.

7) XXXXX you received a ruling XXXXX regarding the application of GST/HST to your business transactions as they relate to the sale of gift certificates. In this ruling it was determined that the devices described above did not qualify for treatment as gift certificates under section 181.2 of the Excise Tax Act ("ETA"), based on the fact that the certificates were being sold at a value less than the amount of the stated value of the certificate. You have informed us that upon receipt of this ruling, you began selling the certificates at their face value so that they could qualify for treatment as gift certificates under section 181.2.

Rulings Requested

1) You have requested that we reconsider our ruling XXXXX in which we stated that the supply by your firm of gift certificates for consideration that is less then the face value of the said certificates was subject to the GST/HST.

2) You have also requested that we rule on whether shipping charges and minimum order fees are subject to GST/HST.

Rulings Given

1) The gift certificates supplied by you and described above qualify as gift certificates for purposes of section 181.2 of the ETA. The sale of the gift certificates is deemed not to be a supply for GST/HST purposes. Consequently, you are not required to charge GST/HST on your sales of the gift certificates.

2) Shipping charges and minimum order fees are considered to be consideration for supplies of services and, as such, they are subject to GST/HST under section 165 of the ETA.

Explanation

For purposes of section 181.2 of the ETA, gift certificates must have a stated value. When redeemed, the certificate is deemed under the legislation to be money and is treated as such. The sale of a gift certificate for consideration (i.e. for money) is deemed not to be a supply for GST/HST purposes. To benefit from this deeming provision, the "certificate" must be a gift certificate within the meaning of the provision.

Gift certificates must have a value expressed in monetary terms. For GST/HST purposes, the value is usually printed on the face of the certificate. Gift certificates are generally redeemable at a limited number of vendors, be they member stores in a chain or vendors in a particular shopping mall. Terms and conditions normally limit the use of the gift certificates to future purchases from the supplier. Where a particular certificate does not have these characteristics, we advise you to request a ruling on the application of the GST/HST status of the supply of that particular certificate.

Where a device commonly known as a gift certificate with the characteristics discussed in the previous paragraph, is sold for consideration that is not equal to its stated or face value, the device may be considered to be a gift certificate for purposes of section 181.2 of the ETA.

Shipping fees and minimum order fees are consideration for transportation or administrative services. The provisions of section 181.2 of the ETA only deem the sale of the certificate not to be a supply. Shipping fees and minimum order fees are consideration for separate supplies and are subject to GST/HST.

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 is 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) 954-1433.

Yours truly,

Bao Tran
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/06/06 — RITS 81993 — Application of GST/HST on Fundraising Event With a XXXXX as a Prize