Section 232.1

See Also

Nestlé Canada Inc. v. The Queen, 2017 TCC 33

reductions in sales price to refund discounts provided by wholesaler were promotional allowances

Nestlé Canada promoted the sale of various of its products at Costco warehouses by having Costco agree to post signs on the shelves indicating per each product item a discount of a fixed dollar amount per item, and then reimbursing Costco for the full amount of all discounts applied to customer purchases at the Costco warehouses. Lamarre ACJ found that these discounts did not qualify as “coupons” as defined in ETA s. 181 because “the customer did not tender any coupon (physical or electronic) to the cashier” but instead simply received a discount. The arrangement instead was characterized by her as the provision of a promotional allowance, stating (at paras. 33, 35 and 45):

[T]he wording found in section 232.1 with respect to promotional allowances seems to apply perfectly to the facts here. …

Nestlé’s repayments of the IRCs were credited against future Nestlé product purchases by Costco….

Nestlé will therefore not be able to claim ITCs on the IRCs and the customer will not recover the tax overpaid. In a promotional allowance context, GST/HST should have been collected only on the post‑discount price.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 181 - Subsection 181(1) - Coupon the mere posting and honouring by Costco of dollar-amount discounts for which it was reimbursed by Nestlé Canada did not come within the GST/HST coupon rules 300
Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. acceptance of oral Crown statement as to provision's purpose 122

Administrative Policy

27 July 2012 Interpretation Case No. 126511

A Distributor and Marketer of magazines had the same corporate parent. The Distributor supplied magazines to Retailers by way of Wholesalers. Under a distribution agreement between the Marketer and Distributor, the Marketer agrees to pay, on behalf of the Distributor, an allowance to the Retailers as an inducement to prominently display the magazines. The allowance is actually paid by the Marketer to the Wholesaler, and the Wholesaler either makes a payment to the Retailer or applies an off-invoice allowance to the next invoice.

CRA stated that the Retailers' provision of services to the Distributor and/or Marketer was "promotion" for the purpose of determining whether s. 232.1 applied to the allowance. The other conditions of s. 232.1 had to be met, including that the payment of the promotional allowance and the supply of the promoted property be made by the same registrant. This requirement could be met on the present facts if the Marketer were paying the allowances as an agent of the Distributor. Not having seen the distribution agreement, CRA declined further comment. However, CRA accepted that it was the Retailer and not the Wholesaler who received the allowance is it was the former "who has a contractual right to receive the Allowance."

28 January 2005 Interpretation Case No. 55951

S.232.1 would apply to amounts paid by suppliers to a retailer to promote specified products, with the retailer offering point of sale "instant rebates" (i.e., a specified dollar amount discount) to purchasers of those products.


"Section 232.1- Promotional Allowances" 31 May 2004: Includes examples of co-promotion arrangment (Example 1), with s. 232.1 applying both to a discount provided by Manufacturer A and allowance provided by Manufacturer B; and situation where the goods (flour) is consumed rather than resold by the purchaser (a baker) so that s. 232.1 does not apply (Example 3).


Shashi Fernando-Eden, "Commodity Tax Highlights", CA Magazine, August 2004, p. 34.