Subsection 181(1) - Definitions
Coupon
Cases
Tele-Mobile Company Partnership v. Canada, 2013 FCA 149, aff'g 2012 TCC 256
The appellant, a registered cellphone service provider ("TM"), offered customers "Billing Credits" when they signed up for longer term contracts (e.g., two years). At issue were Billing Credits that were provided to customers who did not purchase their phones directly from TM, so that they were provided as a credit on TM's invoices rather than as a discount on phone purchase. In finding each such credit was not a "coupon" C Miller J stated (at TCC para. 26) that "it is not some thing entitling the customer to the reduction - it is the reduction itself," and (at TCC para. 27):
The use of device suggests that the legislators acknowledged commerce has entered a technological age where paper may indeed become completely outdated. As the Appellant suggested, the standard commercial practice has evolved with the advent of e-commerce and instead of issuing a paper coupon, a customer's entitlement to a reduction in purchase price can be effected electronically. I do not see how this approach, however, helps the Appellant, as it has pointed to nothing held by the customer, electronically or otherwise, entitling the customer to the credit. The customer simply gets it.
Mainville JA's reasons explicitly adopted C Miller J's statements in paras. 26-27.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 181.1 | 216 |
See Also
Nestlé Canada Inc. v. The Queen, 2017 TCC 33
The appellant claimed input tax credits under ETA s. 181(5) on the payment of the value of “instant rebate coupons” (IRCs) on different Nestlé products sold to consumers at a discount through Costco Wholesale Canada Ltd. (Costco) on the basis that they were coupons within the meaning of s. 181(2), whereas the Minister considered the IRCs instead were promotional allowances under s. 232.1. The IRCs provided purchasers at Costco warehouses with a fixed dollar discount on the purchase price of taxable Nestlé Products, whose amount was posted on the Costco warehouse shelves. The cash register receipt showed the GST/HST applied to the full purchase price, and then a deduction for the IRC amount. The contracts between the appellant and Costco governing the IRCs did not mention that any part of the reimbursements paid by the Appellant to Costco (for 100% of the IRC values) were on account of tax. The appellant and Costco treated the discounts similarly to paper coupons provided by the appellant, which might be kept with the store cashiers and scanned at the time of the customer purchase.
In finding that the IRCs did not qualify as coupons, Lamare ACJ stated (at paras. 29, 30, 31):
The FCA, in Tele‑Mobile, made it clear that there cannot be a coupon unless something is submitted by the purchaser for acceptance as full or partial consideration for the taxable supply, and the coupon thus tendered, whether physical or electronic, must entitle the purchaser to a reduction of the price equal to a fixed dollar amount specified on the physical or electronic device.
…[W]hen the Nestlé product was purchased by the customer, the customer did not tender any coupon (physical or electronic) to the cashier. …
It is true that here there was an 8 1/2” x 14” on‑the‑shelf sign…[but] Costco was merely advertising the discount.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 232.1 | reductions in sales price to refund discounts provided by wholesaler were promotional allowances | 192 |
| Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. | acceptance of oral Crown statement as to provision's purpose | 128 |
Royal Bank of Canada v. The Queen, [2007] GSTC 122, 2007 TCC 281
A Canadian airline ("CAIL") entered into an agreement with the appellant ("RBC") to promote use of RBC's credit card and to honour frequent flyer points to be awarded by it to RBC at the rate of one Point for every dollar of qualifying credit spending. After finding (at para. 55) that "the Points cannot be considered to be a gift certificate…as there is no fixed correlation between the Points issued and their use," Hershfield J went on to state obiter (at para. 60) that "Points can indeed by coupons even though they can only be used in fixed blocks that are sufficient to ensure that the taxable excess is always nil."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l) | taxable supply of frequent flyer points | 146 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply | taxable supply of frequent flyer points | 207 |
| Tax Topics - Excise Tax Act - Section 181.2 | frequent flyer points not gift certificates | 121 |
| Tax Topics - Excise Tax Act - Section 278 - Subsection 278(2) | s. 278(2) precluded direct collection on assessment of recipient until supplier released from remittance obligation under CCAA | 330 |
| Tax Topics - Excise Tax Act - Section 296 - Subsection 296(1) - Paragraph 296(1)(b) | no double taxation in s. 296(1)(b) assessment of purchaser because supplier had been released from its remittance obligation under CCAA plan | 262 |
Administrative Policy
31 July 2023 GST/HST Interpretation 217772 - Complimentary gift cards
A supplier issues, to purchasing customers, supplier-branded gift cards with a monetary exchange value stored electronically on the card. The cards (which do not expire) are used to make purchases at its stores or online at its e-commerce portal. However, in some circumstances (e.g., product promotions or as a customer service gesture) the supplier may issue gift cards with (“complimentary gift cards”) whose “complimentary value” is treated by the supplier as consideration for the goods or services supplied.
For GST/HST purposes, the supplier treats the complimentary value of the gift card as a “coupon” under s. 181(1) and claims an input tax credit (ITC) for the tax fraction of the complimentary value thereof pursuant to s. 181(3)(b). 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 s. 181.2 and no ITCs are claimed regarding the top-up value when given as consideration for a supply of goods or services.
Regarding the above treatment, CRA stated:
[T]he 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 … .
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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 181.2 | bifurcation of a gift card between the complimentary coupon portion and the purchased gift certificate portion | 241 |
23 April 2013 Ruling Case No. 141283 ["gift certificates" applied to purchases up to dollar maximum]
USco is a US-based company which sells vouchers (labeled as "gift certificate") to employers who in turn give them to their employees as holiday gifts. The employees use the vouchers (which entitle the bearer to receive, without charge, a product with a monetary value up to a stated dollar maximum) to get free or substantially discounted products. Where the value of the product exceeds the dollar limit of the voucher, the bearer pays the difference. Upon redemption of a voucher from a retailer, USco reimburses the retailer for the price of the product up to the dollar limit of the voucher, and also pays the retailer [redacted]. The retailer submits the voucher to USco through its usual coupon redemption process. If the price of the product is less than the dollar limit of the voucher, USco will retain the difference as additional revenue.
Ruling that the vouchers are coupons rather than gift certificates.
19 April 2011 Interpretation 112537
In order to promote and encourage customer loyalty, A Co. established and maintained a "points" system (the "Loyalty Points"). Customers may earn points based on the amount of telecommunication services purchased, which may be redeemed towards the purchase of the cellular telephones. CRA stated:
The definition of "coupon" in subsection 181(1) includes a voucher, receipt, ticket or other device. CRA has stated that the redemption of points is viewed as the redemption of a coupon. Therefore, the Loyalty Points awarded to customers as a result of consumption of telecommunication services, on special occasions such as birthdays, or upfront based on the expectation of future consumption of telecommunication services can be viewed as a coupon upon redemption; the awarding of the points to customers is considered a taxable supply that does not attract GST/HST where there is no consideration charged to the customers for the supply.
25 February 2005 Ruling Case No. 56925 [discount not a device]
An electronic discount made available by the manufacturer to all purchasers of the particular product from the retailer would not be considered to be a coupon, as the purchasers would not be in possession of any device that entitled them to a price reduction, and the retailer would not be accepting any device in full or partial consideration for the supply made by it. Instead, the promotional allowance rules in s. 232.1 would apply.
GST M 300-7 "Value of Supply" under "Coupons"
Because the payment or receipt of the reimbursement is deemed not to be a financial service, it will not affect the third party's eligibility to claim ITCs with respect to any GST paid on supplies used to provide the reimbursement. The sale of coupon books, such as "entertainment books" is a taxable supply.
Subsection 181(2) - Acceptance of Reimbursable Coupon
Administrative Policy
7 April 2022 CBA Roundtable, Q.19
Aco sells taxable goods under its brand to a network of independent dealers managed by Bco, and also to Bco for sale by it or for resale to such network. Cco provides loyalty points to Aco or (through Aco) Bco or (through Aco and Bco) to the dealers. Such points entitle the retail customer to a 10% discount on widgets purchased at the applicable retail outlet of Bco or a dealer upon redeeming one loyalty point for each widget purchased. Aco reimburses Bco for 85% of the discount provided and (where the retail sale occurs at a dealer) Bco pays over the reimbursement so received by it to the dealer.
Instead of receiving a discount on widget purchases, the customer may be able to choose to redeem points for a free service provided by Bco or the dealer, the cost of which would be reimbursed by Aco directly to Bco or indirectly (via Bco) to the dealer.
CRA indicated that the ETA s. 181 coupon rules would to some extent apply, so that:
- On the acceptance of the points (viewed as “coupons”) by Bco or the dealer as part consideration for the taxable supply of the widgets, they are deemed to have collected tax equal to the GST/HST that would have been collected had the points not been collected (i.e., equal to the tax fraction of the points’ value).
- When Aco pays an amount to Bco respecting the points redeemed by Bco, s. 181(5) would allow Aco an input tax credit (ITC) for the amount of tax embedded in such redeemed “coupons.”
- However, additional information would be required to determine whether Aco would also be entitled to ITCs when making payments to Bco for points redeemed in turn by a dealer.
- Similar consequences would attend the redemption of loyalty points by a customer in exchange for a free service provided by Bco or the dealer – except that, regarding Aco’s payment to Bco respecting the points redeemed by Bco, no ITC would be generated to Aco because s. 181(5)(c) would not be met.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 181 - Subsection 181(5) | payments made for loyalty points that had been applied to receive free services without a fixed dollar amount, did not generate ITCs | 774 |
27 February 2020 CBA Roundtable, Q.25
A general discussion, based on an incomplete set of facts, indicating that if an emailed promo code was a coupon as defined in s. 181(1), it would be applied as described in s. 181(2) (provided that its amount did not vary, in which case, s. 181(4) could apply), and otherwise would reduce the consideration for the supply.
GST M 300-7 "Value of Supply" under "Manufacturers' Rebates"
General synopsis. GST will apply to co-operative advertising payments in the normal manner.
GST M 300-7-6 "Manufacturers' Rebates"
Subsection 181(3) - Acceptance of Non-Reimbursable Coupon
See Also
Tele-Mobile Company Partnership v. The Queen, 2012 TCC 256, aff'd 2013 FCA 149
The appellant, a registered cellphone service provider ("TM"), offered customers "Billing Credits" when they signed up for longer term contracts (e.g., two years). At issue were Billing Credits that were provided to customers who did not purchase their phones directly from TM, so that they were provided as a credit on TM's invoices rather than as a discount on phone purchase.
Although C. Miller J. found that these credits were not coupons under s. 181(3) (but, rather, were "straightforward discounts[s]" (para. 29)), so that TM was not entitled to input tax credits under s. 181(3)(b), he accepted that a "coupon" could be provided electronically. Regarding the criterion in s. 181(3) that a coupon be for a fixed dollar amount, he stated (at para. 35):
In this day and age of electronic commerce and the use of purchase and sale devices not contemplated 20 years ago, I am of the view that where the fixed amount is clearly known to both sides, and is evidenced in writing, as hard copy or electronically, that can be offered by a customer as partial consideration, the requirement has been met.
C. Miller J. also indicated (at para. 38) in obiter dicta that coupons need not be for a single fixed amount - for example a $50, $100 and $150 discount for a 1-year, 2-year or 3-year contract on the same coupon would be acceptable.
A further arrangement under which customers who purchased TM phones (generally from third-party stores) received coupons, mailed them in to a TM agent, and received a rebate cheque from the agent also did not entitle TM to input tax credits under s. 181(3)(b) as the coupons were not accepted by the supplier of the phones (the third parties) and also because the coupons were not accepted by TM "as consideration for anything" but rather were a rebate ("money that is paid back" (para. 58).
Subsection 181(4) - Acceptance of Other Coupons
Administrative Policy
28 March 2002 Interpretation 34565
A member of a frequent flyer award program exchanged accumulated credits (XXXXX Miles) in exchange for an award ticket for travel within North America and also was required to pay various airport taxes as well as the GST ($44 U.S. funds) in respect of the award ticket. Was such GST collectible? After noting that the flight was not zero-rated under Sched. VI, Pt. VII, s. 3 and that
the definition of "coupon" encompasses intangible devices that have the characteristics of a traditional paper coupon…[including] the type of mileage credit issued [here]
CCRA stated:
The CCRA has taken the position that subsection 181(4) applies to coupons that are accumulated and redeemed after certain thresholds are met (e.g. points, award miles or other similar devices).
… Therefore, airlines...would be required to collect the GST/HST on the net value of the consideration for the award ticket once the accumulated mileage credits have been applied to reduce the value of the consideration for the supply. When a coupon is accepted as the total consideration for a supply, then no GST/HST is payable.
Subsection 181(5)
Cases
President's Choice Bank v. Canada (the King), 2024 FCA 135
A corporation (“PC Bank”) in the Loblaw group, whose business was to grant credit through the operation of a MasterCard program, obtained the right to issue loyalty points (“PCB Points”) from an affiliate (the owner of rights to the program) and then started issuing PCB Points to its cardholders which could be applied by them towards purchases at Loblaw-branded stores. PC Bank received payments of $0.0075 from Loblaws for each $1.00 of sales made by Loblaws to such cardholders (that generated such points). When the PCB Points were so redeemed by the cardholders for purchases from Loblaws, PC Bank was obligated to pay the cash value of the points to Loblaws. Loblaw also agreed to pay $0.35 to PC Bank for every $1.00 of notional value of PCB Points accumulated by a PC cardholder to the extent redeemed.
Goyette JA found that that the Tax Court had made two errors of law in finding that PC Bank’s payments of the redemption amounts did not entitle it to notional input tax credits (“NITCs”) pursuant to s. 181(5) (based on the tax fraction thereof) because such amounts did not satisfy the s. 181(5) requirement of being paid “in the course of a commercial activity” of PC Bank. First, the Tax Court considered that the phrase “in the course of a commercial activity” entails an either/or test (whereas instead it did not matter that PC Bank paid those amounts in the course of its financial services business because they were also paid in the course of its commercial activity of “driving customers to Loblaws” (para. 24)) . Second, the Tax Court erred in considering profitability (i.e., that PC Bank made a net loss for every point it redeemed) in finding that the redemptions did not occur in the course of a commercial activity.
Regarding the first point, she noted that the redemption amount was not required by s. 181(5) to be paid “exclusively” or “primarily” in the course of a commercial activity, and stated (at para. 26):
Unlike the words exclusively and primarily, the phrase “in the course of” has a broad meaning; it means “incidental to” or “connected to” directly or indirectly … .
She further stated (at para. 36):
In drafting subsection 181(5), Parliament did not include explicit language that the credit be allocated only “to the extent” that the person made the payment in the course of a commercial activity. The absence of this allocative language indicates that Parliament intended to grant an NITC on the entire amount of a coupon redemption payment from the moment the payment was made in the course of a commercial activity.
She concluded (at para. 60):
Because PC Bank makes the Redemption Payment in the course of its commercial activity, it is entitled to claim NITCs.
In the course of his extended dissenting reasons, Webb JA stated (at para. 125):
Just as the scheme of the ETA does not contemplate that 100% of a particular property or service that is acquired can be considered to be used in both a commercial activity and a business of making exempt supplies, Parliament did not intend that 100% of a single payment that is made could be considered to be made in both the course of a commercial activity and in the making of exempt supplies.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) | s. 169(1) requires apportionment of an acquisition of a property or service between commercial and exempt activity | 72 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Commercial Activity | commercial activity of corporation can be at a loss | 144 |
See Also
President's Choice Bank v. The Queen, 2022 TCC 84, rev'd 2024 FCA 135
A corporation (“PC Bank”) in the Loblaw group, whose business was to grant credit through the operation of a MasterCard program, obtained the right to issue loyalty points (“PCB Points”) from an affiliate (the owner of rights to the program) and then started issuing PCB Points to its cardholders “to entice them to use their PC MasterCards frequently in order to accumulate PCB Points that could be used to acquire discounted or free goods from Loblaws” (para. 53), and received payments of $0.75 from Loblaws for each $1.00 of sales made by Loblaws to such cardholders (that generated such points). When the PCB Points were so redeemed by the cardholders for purchases from Loblaws, PC Bank was obligated to pay the cash value of the points to Loblaws. Loblaw also agreed to pay $0.35 to PC Bank for every $1.00 of notional value of PCB Points accumulated by a PC cardholder to the extent redeemed.
In finding that PC Bank was not entitled to input tax credits pursuant to s. 181(5) when paying the redemption amounts to Loblaws because such amounts were not paid “in the course of a commercial activity” of PC Bank, Hogan J stated (at paras. 67, 75):
PC Bank issued the PCB Points to generate revenue from its PC MasterCard portfolio. PC Bank earned significant revenue from interchange fees that pales in comparison to the minimal revenue it received from Loblaws. …
There is a direct link between the PCB Points that are issued in conjunction with an exempt financial service supplied by PC Bank to Cardholders and an expense that is paid when the PCB Points are redeemed by Cardholders.
Regarding the submission of PCB Bank that weight should be given to the fees generated by it from Loblaws, he stated (at para. 77):
It is unimaginable for me that the Appellant would accept to pay $1.00 to earn $0.35. Why would the Appellant issue points to lose money?
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.3) | automated credit and fraud processing services provided to credit card company were excluded under para, (r.3) | 263 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (t) | automated credit and fraud monitoring services were likely excluded under para. (t) | 189 |
Administrative Policy
7 April 2022 CBA Roundtable, Q.19
Company A sells goods in taxable supplies under its brand to a network of independent dealers managed by Company B, and also to Company B for sale by it or for resale to such network. Company C provides loyalty points to Company A or (through Company A) Company B or (through Company A and Company B) to the dealers. Such points entitle the retail customer to a 10% discount on widgets purchased at the applicable retail outlet of Company B or a dealer upon redeeming one loyalty point for each widget purchased. Company A reimburses Company B for 85% of the discount provided and (where the retail sale occurs at a dealer) Company B pays over the reimbursement so received by it to the dealer. Instead of receiving a discount on widget purchases, the customer may be able to redeem points for a free service provided by Company B or the dealer, the cost of which would be reimbursed by Company A directly to Company B or indirectly (via Company B) to the dealer.
1. Will the redemption of loyalty points by a customer for a discount applied to a purchase of widgets cause the creation and issuance of a coupon to the customer for the widget as defined under s. 181(1) (so that the acceptance of the points by Company B or its dealer entails the issuance of a coupon to the customer, which is then exchanged for the discount applied to the customer’s widget purchase)?
2. If “yes,” what are the s. 181(2) consequences of such acceptance?
3. On such redemption, would s. 181(5) allow Company A to claim an ITC for the amount of tax embedded in the reimbursement paid to Company B?
5. Does the redemption of points by a customer for a free service entail the creation of a “coupon” (as defined in s. 181(1), which is then exchanged for the free service (so that s. 181(4) applies when the coupon is accepted by Company B or the dealer)?
6. Would Company A be eligible to claim an ITC on redemption of the points?
CRA responded:
1. The acceptance of the loyalty points by Company B or its independent dealers is considered to be the acceptance of a “coupon” as defined in s. 181(1), that is redeemed by a customer for a discount that is applied to the purchase of widgets.
2. Under s. 181(2), in accepting points (i.e. the coupon) as partial consideration for a taxable supply that is not a zero-rated supply, Customer B or its independent dealer is deemed to have collected the tax that would have been collected had the points not been accepted. Pursuant to s. 181(2), this includes an amount equal to the tax fraction of the value of the points redeemed (the coupon value) that is embedded in the discount allowed to the customer.
3. Where Company A pays an amount to Company B in respect of the coupons (points) redeemed by Company B, s. 181(5) would allow Company A to claim an input tax credit (ITC) for the amount of tax embedded in the coupon value. However, without additional information, CRA was unable to determine whether Company A was similarly entitled when it made the corresponding payments to Company B.
4. When the supplier of widgets redeems customer loyalty points and receives payments from another person in respect of such redemptions, s. 181(2) applies as the scenario is that of a reimbursable coupon.
5. The redemption of loyalty points by a customer in exchange for a free service provided by Company B or an independent dealer would be considered the acceptance of a coupon, and s. 181(4) would apply where Company B or its dealer accepted the loyalty points.
6. As s. 181(4) applies, the reimbursement of the coupon is deemed under s. 181(5) not to be consideration for a supply and the payment and receipt of the amount is deemed not to be a financial service. However, there would be no ITC available as s. 181(5)(c) is not met, i.e., the coupon does not entitle the recipient to a reduction of the price of the taxable supply by a fixed dollar amount specified in the coupon, and instead the recipient of the service, on redeeming the points, opts in lieu of a fixed dollar amount off the price of widgets for a free service, the value of which varies depending on the location where the service is performed..
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 181 - Subsection 181(2) | coupon rules applicable to loyalty points applied to acquire goods at a discount, or goods with a free service | 357 |