29 February 2008 GST/HST Interpretation 99615 - Requirement for Direct Sellers to Apply to Use The Alternative Collection Method for GST/HST

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 certain vouchers distributed by XXXXX, a GST/HST registrant.

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 has been reduced from 6% to 5% and the rate of the HST from 14% to 13%. The new rates 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

We understand:

•   XXXXX.

•   XXXXX operates exclusively in the course of commercial activity.

•   XXXXX had temporary promotional offers in XXXXX and XXXXX whereby consumers XXXXX were presented with a voucher which entitled the consumer to, respectively, $XXXXX or $XXXXX off the price of XXXXX when purchased at a XXXXX store. XXXXX.

•   The XXXXX voucher was a $XXXXX paper document that could be applied towards the purchase of any XXXXX. The XXXXX voucher was a $XXXXX plastic card that could be applied on any XXXXX at XXXXX locations. This latter voucher has no magnetic strip that can be used to activate an account.

•   When a consumer bought XXXXX at the XXXXX store, the store collected GST on the price before the application of the voucher. The amount so redeemed by the stores was billed by XXXXX to XXXXX.

•   XXXXX agreed to pay XXXXX% of the total retail cost of the $XXXXX voucher and XXXXX agrees to pay XXXXX% of the total retail cost of the $XXXXX voucher in reimbursing XXXXX for the vouchers redeemed each month within 30 days after receiving the invoice.

•   XXXXX was responsible for the balance of XXXXX% of the retail cost of the $XXXXX vouchers.

•   XXXXX was responsible for the cost of production and delivery of the vouchers to XXXXX locations.

•   XXXXX. The vouchers included XXXXX's legal copy: XXXXX.

•   Neither of the coupons in question, XXXXX have any cash or residual value.

•   XXXXX.

Ruling Requested

1) Is each of the two vouchers offered by XXXXX a reimbursable "coupon" as defined in subsection 181(1) XXXXX?; and

2) Is XXXXX entitled to a notional input tax credit for the tax fraction of the amount reimbursed to XXXXX under subsection 181(5) XXXXX?

Ruling Given

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

1) The vouchers, the XXXXX $XXXXX voucher and the XXXXX $XXXXX voucher, XXXXX, provided by XXXXX to its XXXXX are not reimbursable coupons as defined in subsection 181(2) XXXXX.

2) XXXXX is not entitled to a notional input tax credit for the tax fraction of the amount reimbursed to XXXXX by XXXXX for vouchers redeemed for XXXXX at the XXXXX locations under subsection 181(5) XXXXX.

Explanation

Based on the information provided, the coupons qualify under subsection 181(4) XXXXX, which applies to two-for-one coupons, buy-A-get-B-free coupons, among others. The coupons do not entitle the customer specifically to a fixed dollar amount as required to be considered a reimbursable coupon under subsection 181(2). When there are purchases under the stated value of the coupon there is no cash back and the remainder value is forfeited. In essence, the coupon is for an amount "up to" a maximum of the stated value rather than for a fixed dollar amount. As a consequence, GST should have been calculated after the reduction was applied to the customer's purchase. For coupons which fall under subsection 181(4), "Acceptance of other coupons", there is no entitlement to the reimburser of an input tax credit under subsection 181(5) pursuant to a redemption of a coupon because that subsection also requires that the recipient is entitled to a reduction of the price of the property or service equal to a fixed dollar amount specified in the coupon.

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 613 952 9220. 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,

Larry Springstead
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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