Amex Bank – Tax Court of Canada finds that costs of Amex’ points program were inputs to its exempt credit card revenues, and did not generate ITCs

CRA denied the input tax credit (“ITC”) claims of Amex for its 2002 to 2012 taxation years for GST/HST paid on expenses arising in connection with the administration and operation of Amex’s Membership Rewards Program (“MRP”), including expenses incurred for the purpose of providing its cardholders who were members of the MRP (“Members”) with rewards on the redemption of points earned by them mostly through making purchases on their cards.

Hogan J, in dismissing Amex’s appeal, found that “all of the elements and components of the MRP are inherently intertwined and connected with the exempt supply of financial services made by the Appellant to its Members and merchants.” In particular, he found that that Amex incurred such expenses “for the purpose of earning greater [GST/HST-exempt] merchant discount revenue in its credit card business.”

Amex submitted that the free supply rule in s. 141.01(4) applied to characterize the supply of the rewards as a taxable supply, on the basis that (i) the supply of rewards to Members was made for no consideration, and (ii) the purpose of making such supply was to facilitate the activities of the Members. Hogan J rejected both branches: Amex in fact was not making free supplies since it made its supply of rewards “in satisfaction of a redemption liability that is extinguished on completion of the transaction;” and even if there was a free supply, its predominant purpose was facilitating the generation of revenues from Amex’s exempt credit card activities.

Neal Armstrong. Summaries of Amex Bank of Canada v. The King, 2023 TCC 93 under s. 169(1) and s. 141.01(4).