Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 217772
Dear [Client]:
Subject: GST/HST INTERPRETATION
Complimentary gift cards
Thank you for your letters of [mm/dd/yyyy] and [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to complimentary gift cards. We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the situation as follows:
1. A corporation (the supplier) is a registrant engaged in supplying taxable goods and services to customers across Canada through its in-store and online sales.
2. The supplier issues supplier branded gift cards with a monetary exchange value stored electronically on the card. The gift cards can be used to make purchases at the supplier’s physical stores or online at the supplier’s e-commerce portal.
3. Customers can purchase the gift cards in person or online and are permitted to add additional amounts to the monetary exchange value of the gift cards also in this manner. The gift cards do not expire nor can they be cancelled, and they are not replaced if lost or stolen.
4. The supplier does not charge an administrative fee to customers when the gift cards are issued or redeemed nor does it charge a fee against any balance.
5. In certain circumstances such as a product promotion or as a customer service gesture, the supplier may issue gift cards with a complimentary monetary exchange value to customers commonly referred to as complimentary gift cards.
6. Customers may use the complimentary monetary exchange value (the “complimentary value”) of the gift card to purchase goods or services from the supplier who treats the complimentary value of the gift card as full or partial consideration for the goods or services supplied.
7. For GST/HST accounting purposes, the supplier treats the complimentary value of the gift card as a “coupon” within the meaning of subsection 181(1) and claims an input tax credit (ITC) for the tax fraction of the complimentary value of the gift card pursuant to paragraph 181(3)(b).
8. Similar to some gift cards, customers can add additional amounts to the complimentary value of the gift cards. The supplier treats the additional amounts (the “top-up value”) as a “gift certificate” within the meaning of section 181.2 and no ITCs are claimed with respect to any top-up value when given as consideration for a supply of goods or services.
9. The supplier tracks and accounts for the complimentary value of each gift card separately from any top-up value added and other gift cards it issues and is able to distinguish and account for the complimentary value provided to customers on each gift card separate from any top-up value added by the customers.
[…]
It is your position that the complimentary value of a gift card, in the above situation should be considered a “coupon” as defined in subsection 181(1), and that the supplier should be entitled to an ITC pursuant to paragraph 181(3)(b) as the tax collectible for a supply is deemed under subsection 181(2) to include an amount that is the tax fraction of the complimentary value of the gift card.
INTERPRETATION REQUESTED
You would like confirmation that the complimentary value of a gift card may be treated as a “coupon” within the meaning of subsection 181(1) and that the supplier is entitled to claim an ITC for the tax fraction of a complimentary value of the gift card, pursuant to paragraph 181(3)(b).
INTERPRETATION GIVEN
The Canada Revenue Agency (CRA) has reviewed its position with respect to complimentary gift cards. Based on the information provided, the CRA is of the view that the complimentary value of a gift card may be included in the term “coupon” within the meaning of subsection 181(1) where the following criteria are met:
1. The complimentary value of each gift card issued by a supplier for no consideration is tracked and accounted for separately from any top-up value added to the gift card, and the monetary exchange value of other gift cards issued by the supplier must also be accounted for separately.
2. The person redeeming the complimentary value of the gift card is, or believed to be, a consumer as defined for GST/HST purposes.
3. The supplier accepts the complimentary value of the gift card as full or partial consideration for a supply of property or service.
4. The complimentary value of the gift card is extinguished before any top-up value that has been added to the gift card is accepted as full or partial consideration for a supply.
Where the above criteria are met:
- In the case of a taxable supply that is not a zero-rated supply, the supplier may claim an ITC for the tax fraction of the amount of the complimentary value of the gift card redeemed under paragraph 181(3)(b).
- In the case of a zero-rated or exempt supply, subsection 181(4) applies; the supplier is not entitled to claim an ITC as no amount of GST/HST is included in the tax fraction of the complimentary value of the gift card redeemed for a zero-rated or exempt supply.
- Any top-up value added to the gift card would generally be considered the issuance or sale of a gift certificate for consideration and when redeemed for a supply of property or services shall be deemed to be money as described in section 181.2.
Gift cards issued in circumstances when an item is returned without a receipt would generally be considered to be issued for consideration; the value of the returned item being the consideration pursuant to paragraph 153(1)(b). Consequently, a gift card issued in this circumstance would generally be considered a gift certificate for purposes of section 181.2.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-324-7413. 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,
William Parker
General Operations and Border Issues Division
GST/HST Rulings Directorate
Email this Content