9 February 2007 GST/HST Interpretation 76905 - Application of GST/HST to brokering of physical commodities

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 the sale of XXXXX Music Cards. We apologize for the delay in responding.

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 the Canadian version of the XXXXX Store website, XXXXX (referred to as the "Canadian website"), the following facts:

1. In Canada, XXXXX Music Cards (the "Cards") are issued by the Canada XXXXX Music Store (also referred to as the XXXXX Store; and in this ruling, the "Store").

2. The Cards are sold by various retailers and online through the Canadian website.

3. A Card (also known as an XXXXX Gift Card) purchased in Canada may only be redeemed in Canada through the Canadian website.

4. The Card may be purchased in Canada in denominations of $XXXXX and $XXXXX Canadian. Your letter also indicates the availability of a $XXXXX Canadian Card.

5. The Card is a plastic card with a stated value on the front and, on the back, contains a serial number, a hidden XXXXX activation code and a bar code.

6. The Card is redeemed by inputting the activation code that must be revealed by scratching the back of the Card. The person who inputs the Card activation code on the Canadian website is referred to in this ruling as the "recipient".

7. Upon redemption of the Card, the recipient is entitled to Store credits ("credits") equal to the stated value of the Card. Once the Card has been redeemed (i.e. the activation code has been input on the Canadian website), the Card itself cannot be used or charged again for any future use.

8. The credits in favour of the recipient are established when the recipient inputs the Card activation code on the back of the Card. Unused credits are held in a Store account ("account") in favour of the recipient.

9. The account allows the recipient to download music available from the Canadian website. Funds are deducted for each music download from the credits in the account until the account is depleted. Music downloaded is only for the personal use of the recipient and cannot be sold.

10. Should the account hold insufficient credits for downloading music, a credit card number, issued by XXXXX, must be entered before downloading will commence.

11. Any unused credits in an account expire XXXXX years after the later of the date of issuance or last activity.

12. According to the Terms of Sale XXXXX for the Store, the "total price will include the price of the XXXXX plus any applicable sales taxes, including GST/HST, QST and/or provincial retail sales tax (in effect on the day of download)."

13. In addition, the Terms of Sale state, "All sales on the XXXXX Store are governed by the laws of the Province of XXXXX and the federal laws of Canada applicable therein without regard to conflict of laws rules."

Ruling Requested

You would like to know if the XXXXX Music Card is a gift certificate for GST/HST purposes and, therefore, subject to section 181.2.

Ruling Given

Based on the facts set out above, we rule that the XXXXX Music Card (also known as an XXXXX Gift Card) is a gift certificate for GST/HST purposes and, therefore, the Card is subject to the provisions of section 181.2.

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 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.

Explanation

For purposes of section 181.2, gift certificates may include plastic cards that can be read electronically that are issued by a vendor. To be a gift certificate, the plastic card must entitle the bearer to a reduction of the total amount of money payable (i.e. consideration plus applicable taxes including GST/HST) for any supply of goods or services supplied by the issuing vendor.

In this case, the Store has sold, directly or through intermediaries, a "device" with a stated value that the recipient acquired for consideration. The recipient may keep the Card or transfer it to another person. Upon redemption of the Card, by entering the activation code on the Canadian website, the Store exchanges the value of the Card for music downloads equal to the value of the Card. In accordance with the Terms of Sale, the total price charged against the credits includes GST/HST and applicable provincial sales taxes.

Therefore, the Card meets the characteristics of a gift certificate as described in GST/HST Policy Statement P-202, Gift Certificates. The Card has a stated monetary value; it can be redeemed for the purchase of property (intangible personal property, in this case, music); consideration has been given for the Card; it is transferable, and the Card has no intrinsic value.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 519-675-3018 or Ken Syer at 613-952-9219.

Yours truly,

Wm.J. (Bill) Parker
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/02/07 — RITS 78839 — Application of Sections 170 and 173 of the Excise Tax Act