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Subject:
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Parking Token Program
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This is in reply to your facsimile message received May 6, 1993, in which you ask us to review and provide comments on a parking token program XXXXX uses to promote the economic development of the downtown area. This request resulted from comments made to your office by regional quality assurance with regards to a letter dated February 22, 1993 XXXXX[.] We apologize for the delay in response.
The facts, as we understand them, are as follows:
• The Association is a non-profit organization established to promote the economic development of the downtown area of XXXXX[.]
• The Association was registered at the time the referenced letter was written. They subsequently deregistered effective June 30, 1993.
• The Association purchases tokens from a manufacturer. Each token has a face value of 25 cents.
• The tokens are supplied to downtown merchants by the Association for consideration equal to the face value of the tokens. A local bank physically holds the tokens and distributes them to downtown merchants. The money received by the bank for these tokens is deposited into the Association's account at that bank.
• The downtown merchants distribute the tokens free of charge to their customers.
• These tokens can be used at municipal parking lots, at municipal parking garages, in municipal parking meters, and for public transit, as well as at certain private parking lots. They are accepted at their face value as full or partial payment at these locations.
• The City o[f] XXXXX and the private parking lots return the tokens they have accepted to the Association and in return are paid the face value of the tokens. The City of XXXXX actually bills the Association for the tokens accepted for municipal parking indicating that the amount is GST included. (i.e. $466.29 + $33.71(GST) = $500.00 for tokens with a face value of $500.00)
In the letter referenced above, XXXXX suggested that the tokens are in the nature of financial instruments. He therefore reasons that the issuance or exchange of the tokens qualify as a financial service pursuant to the definition of same included in subsection 123(1) of the Excise Tax Act (ETA). The letter references paragraph (a) of the definition of financial service which indicates that a financial service includes: "the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise". He then justifies his conclusion by indicating that the program would be considered an exchange of money under the word "otherwise".
Subsection 123(1) of the ETA defines "money" to include
"any currency, cheque, promissory note, letter of credit, draft, traveller's cheque, bill of exchange, postal note, money order, postal remittance and other similar instrument, whether Canadian or foreign, but does not include currency the fair market value of which exceeds its stated value as legal tender in the country of issuance of currency that is supplied or held for numismatic value;".
The tokens in question are not currency as they are not a medium of exchange issued by a country as legal tender. Further, these tokens would not be considered a cheque, promissory note, letter of credit, draft, traveller's cheque, bill of exchange, postal note, money order or a postal remittance as these are all issued for the purpose of paying a debt or to transfer funds upon the credit of the issuer. In contrast, these tokens are issued for the purpose of reducing the consideration that would otherwise be payable for specific supplies. As the tokens are not any of the instruments listed in the above definition nor are they similar to any of these instruments, they are not money. The issuance or exchange of these tokens therefore does not qualify as a financial service under paragraph (a) of the definition of a financial service or under any other part of that definition.
The GST implications of the token program for the Association, the downtown merchants purchasing the tokens, the customers using the tokens, and the persons accepting the tokens as full or partial consideration for a supply, are as follows:
When the Association purchases the tokens from the manufacturer, it will pay GST on the value of the consideration for the supply of the tokens, assuming the manufacturer is a GST registrant. The Association will be eligible for an input tax credit for this amount if they are a registrant at the time the tokens are purchased and if the tokens are used by it in a commercial activity (discussed below).
When the Association issues the tokens to downtown merchants, they are providing a right, as evidenced by the token, to receive a future benefit (i.e. a reduced consideration
for specific supplies to be provided at a future date by specific suppliers). The supply of this right would be a supply of intangible personal property. Although the Association is a non-profit organization, it is involved in a commercial activity as it would be considered to be carrying on a business, given its other activities in addition to the token program. As there are no provisions in Schedule V to the ETA to exempt the providing of these tokens, their provision would be a taxable supply as part of the Association's commercial activity. The Association, if registered at that time, must collect tax on the value of consideration received for the supply of the tokens. The downtown merchants are entitled to input tax credits for the tax paid if they are registered and the tokens are used in their commercial activities.
When the downtown merchants give the tokens to their customers, they are making a supply of a right. This is the same right they acquired from the Association. If this supply is for no consideration, and is conducted at arms length, no GST would be collectible.
The tokens will be considered a coupon under section 181 of the ETA when they are used by a person as full or partial payment at a participating location. Subsection 181(1) of the ETA states that a "coupon" includes a voucher, receipt, ticket or other device but does not include a gift certificate. A ticket can be defined as a certificate, evidence, or token that the person to whom it is issued, or the holder, is entitled to some right or privilege. The tokens in question are tickets as they are evidence of a right and are therefore considered coupons in section 181. Generally, there are three types of coupons; reimbursable offering a specific monetary discount, non-reimbursable offering a specific monetary discount, and other. Coupons, such as the tokens in question, which can be used for taxable as well as exempt supplies are considered "other" coupons. Subsection 181(4) applies to these other coupons. Specifically, under subsection 181(4) of the ETA, the value of consideration for the supply will be deemed to be equal to the amount, if any, by which the value of consideration for the supply as otherwise determined exceeds the value of the tokens exchanged. Therefore the participating location will be required to account for GST if the tokens are redeemed for a taxable supply, based on this value of consideration. For example, if the parking charges are $2.00 and the person presents two tokens and $1.50 cash, the value of consideration for that supply of parking would be deemed to be $1.50.
There are no GST consequences for the participating location when they present the tokens to the Association and are reimbursed their face value. Subsection 181(5) of the ETA deems the amount paid not to be consideration for a supply. However, as the tokens are not for a fixed dollar amount, the Association would not be entitled to claim an input tax credit equal to the tax fraction of the amount reimbursed even if the participating location accepted the tokens as full or partial consideration for a taxable supply.
Finally, I call your attention to the end of the fifth paragraph on page two of the letter that was quality reviewed and resulted in this request (XXXXX dated February 22, 1993). It states, "Public transit fares are represented by the transit authority to be GST included." You should note that under section 24 of Part VI of Schedule V to the Act, a supply of municipal transit service or a public passenger transportation service designated by the Minister to be a municipal transit service will be exempt from the GST.
If you have any questions or require additional information, please contact Ken Mathews at 952-9585.
H.L. Jones
Director
General Tax Policy
Policy and Legislation XXXXX Excise/GST
c.c.: Don McColl
XXXXX regional office
Application team
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