31 March 2000 GST/HST Interpretation 8120/HQR0001726 - Gift Certificates

In reply to your facsimile transmission of March 27, 1999 concerning the application of Goods and Services Taxes ("GST") to gift certificates, our comments are set out below.

Based on your facsimile transmission, our understanding of the facts is as follows:

•   A self-funding non-profit organization (NPO) has approached XXXXX with a fund raising plan.

•   XXXXX will print up "gift certificates" with a face value of XXXXX to be used at XXXXX towards the purchase of bedding plants.

•   XXXXX will sell the "gift certificates" to the NPO for XXXXX nd not collect GST.

•   The NPO will then sell the "gift certificates" for their face value of XXXXX to individuals and not collect GST.

•   The individuals who purchase the "gift certificates" from the NPO will then redeem them towards the purchase of bedding plants from XXXXX.

•   The NPO gains XXXXX per "gift certificate" towards fundraising.

•   The NPO is a small supplier and is not registered

You have requested our views as to the GST consequences of these transactions. You have also inquired whether the XXXXX is considered to be a donation by XXXXX to the NPO.

In the first transaction, the NPO is paying a discounted amount (consideration of XXXXX per certificate) to XXXXX for the XXXXX "gift certificate". The certificate therefore no longer satisfies one of the conditions specified under Policy Paper P-202 Gift Certificates, which states that the consideration given for the gift certificate must equal the stated value on the "certificate". As such, the rules that apply to gift certificates under section 181.2 of the Excise Tax Act (ETA) would not apply, and the transaction would be subject to the general imposition provisions under the ETA.

In the transaction where the NPO sells the "gift certificate" to the individual for XXXXX and the requirements of a "gift certificate" as defined in Policy P-202 Gift Certificates are satisfied. As such, the rules for gift certificates in section 181.2 would apply. The sale of a gift certificate is not a taxable supply, therefore no GST payable on the consideration paid for the gift certificate. At the time of the redemption of the gift certificate by the recipient, it is to be treated as cash to be used in the settlement of the transaction.

In order for any gift to be considered a tax deductible donation under the Income Tax Act, it must be made to a registered charity. There is no indication that the NPO is a registered charity thus the XXXXX cannot be considered a donation for Income Tax purposes.

Should you have any additional questions with respect to this matter, please contact me at (613) 957-7945 or Philippe Nault at (613) 952-3413.

Yours Truly,

Susan Mills
Technical Officer
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Ruling Directorate