CRA accepts the bifurcation of a gift card for GST/HST purposes between the complimentary coupon portion and the purchased gift certificate portion

A supplier issues gift cards with stipulated monetary values to purchasing customers, which they can use at its stores or at its e-commerce portal. However, to promote products or as a customer service gesture, the supplier also issues “complimentary gift cards” whose “complimentary value,” when applied by the customer, is treated by it as consideration for the goods or services supplied. Customers can purchase additions (“top-up values”) to such cards.

CRA indicated that, subject to conditions, the complimentary value of a gift card could be treated as a “coupon” for GST/HST purposes so that, in the case of a (non-zero-rated) taxable supply, the supplier could claim an ITC under ETA s. 181(3)(b) for the tax fraction of the complimentary value on the gift cards’ redemption. Those conditions principally were that:

• The complimentary value of each gift card issued is tracked and accounted for separately from any top-up value added to the gift card.
• The person redeeming the complimentary value is believed to be a consumer.
• The supplier accepts the complimentary value as full or partial consideration for a supply of property or service.
• The gift card’s complimentary value is extinguished before any top-up value is applied to a supply.

CRA went on to note that 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, would be deemed to be applied as money as described in s. 181.2.

Neal Armstrong. Summaries of 31 July 2023 GST/HST Interpretation 217772 under ETA s. 181(1) – coupon, and s. 181.2.