How to treat coupons, gift certificates and manufacturers' rebates

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How to treat coupons, gift certificates and manufacturers' rebates

Businesses may issue coupons, rebates, or gift certificates to reduce the price of a good or service. GST/HST applies differently depending of the type of coupon or certificate issued.

Non-reimbursable coupons

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These are coupons that you, as the vendor, issue and accept, and for which no one reimburses you. They entitle the customer to a reduction on the price for a fixed dollar amount or percentage amount. As the issuer, you can either include a reduction of the GST/HST in the face value of these coupons, or reduce the purchase price of the good or service.

If you choose to include the GST/HST in the value of the coupons, when accepting the coupon, you treat them the same way as reimbursable coupons. This means that you charge and remit the GST/HST on the full price of the good or service. Since these coupons are non-reimbursable, you can claim an input tax credit (ITC) for the tax fraction of the coupon value as follows:

  • 5/105 for the GST; or
  • 13/113 in Ontario, or 15/115 for New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.

If you choose not to include GST/HST in the value of your coupons, deduct the coupon value from the selling price before calculating GST/HST.

Example

A client buys an item in your store in Alberta. He gives you a non-reimbursable coupon that does not include the GST. You calculate the tax as follows:

Price of the item
$25.00
Less coupon value
− $5.00
Subtotal
$20.00
GST ($20 × 5%)
+  1.00
Customer pays
$21.00

In this case, when you file your GST/HST return, report the GST/HST you charged on your sale after you deducted the coupon from the purchase price ($1.00 GST in the above example). You cannot claim any ITCs for coupons you issue that do not include the GST/HST.


Reimbursable coupons

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Reimbursable coupons are usually called manufacturers coupons. They entitle the customer to a reduction of a fixed dollar amount on the purchase price. Vendors can expect to be reimbursed by the manufacturer or another third party for accepting these coupons from customers. Their value includes the GST/HST, when used to purchase taxable supplies.

When you, as a vendor, accept a reimbursable coupon from a customer, you treat the coupon the same as cash. If the purchase is subject to tax, you charge the GST/HST on the full price of the item and then deduct the value of the coupon. We consider you to have collected a portion of the GST/HST equal to the tax fraction of the value of the coupon. The tax fraction for the GST is 5/105, and for the HST is 13/113 in Ontario, or 15/115 for New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. For example, a coupon for $1.00 off the selling price includes:

  • 5¢ for the GST ($1.00 x 5/105);
  • 13¢ for the HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, or Prince Edward Island ($1.00 × 15/115); or
  • 12¢ for the HST in Ontario ($1.00 x 13/113).

The manufacturer reimburses you for the coupon value of $1.00, which includes the GST/HST.

Example

You operate a pharmacy in Alberta. A customer buys shampoo for $10.00 and has a reimbursable coupon for $1.00. You charge and remit 50¢ GST and get $1.00 reimbursed by the manufacturer, which includes 5¢ GST. Your invoice would show:

Price of the shampoo
$10.00
GST ($10.00 × 5%)
+ 0.50
Subtotal
$10.50
Less coupon
- 1.00
Customer pays
$9.50

If you are a GST/HST registrant and you use coupons to make purchases for your commercial activities, you can claim an input tax credit (ITC) equal to the total GST/HST paid on the purchases less the tax fraction of the coupon value. If we refer to the example above, you can claim an ITC of 45¢:

50¢ - ($1.00 × 5/105)

If you are the manufacturer, you can also claim an ITC (other than for zero-rated supplies) for the tax fraction of the coupon value. However, the vendor who accepts the reimbursable coupons from the customer cannot claim any ITCs for these coupons since you reimburse the vendor the tax.


Manufacturers' rebates

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Manufacturers' rebates apply when:

  • a customer purchases taxable goods or services and then claims a manufacturer's rebate for that purchase;
  • the supply of those goods or services to the customer is made either directly by the manufacturer or by another person such as a retailer; and
  • the customer receives a rebate from the manufacturer for purchasing the goods or services and is made aware in writing that the rebate includes the GST/HST.

Some manufacturers include a rebate application with the goods or services they sell. After buying the item from the retailer, the customer completes the application and mails it directly to the manufacturer.

Since the payment of the rebate is a separate arrangement between the manufacturer and the customer, the retailer has to remit the GST/HST collected on the full selling price of the item without deducting the value of the manufacturer's rebate.

Example

A customer buys a package of batteries in your hardware store in Manitoba for $10 plus the GST. Inside the package is an application to complete and mail to the manufacturer for a $2 rebate. You collect and remit the GST on the full retail price of the batteries. The customer completes and mails in the rebate application to the manufacturer. Once the manufacturer receives the application they will send the customer a cheque for $2.

Some manufacturers give rebates to their customers through the retailer when the customer buys the goods. Even if the retailer applies the rebate toward the retail price of the goods, the retailer collects the GST/HST on the full retail price before deducting the rebate amount.

Example

An automobile dealership in Saskatchewan sells an automobile to a customer for $20,000, plus $1,000 GST. The dealer informs the customer that the manufacturer is providing a $1,000 rebate. The customer chooses to use the rebate to reduce the payment for the automobile. The dealer charges $1,000 GST.

Selling price
$20,000
GST ($20,000 × 5%)
+ 1,000
Subtotal
$21,000
Less rebate
− 1,000
Customer pays
$20,000

Manufacturers who pay rebates may claim an input tax credit (ITC) for the GST/HST equal to the following percentages of the rebate amount in the reporting period in which they paid the rebate: 5/105 for the GST, or 13/113 in Ontario, or 15/115 for New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.

Special rules apply if the customer receiving the rebate is a registrant who is entitled to claim an ITC or a GST/HST rebate on the purchase. The manufacturer has the option of calculating the GST/HST on the value after the reduction is applied. This means that the manufacturer will not claim an ITC on the rebate amount. Otherwise, if the GST/HST is included in the rebate, the customer, if a registrant, will have to remit the GST/HST equal to 5/105 for GST, for the HST 13/113, or 15/115 for HST for the rebate amount.


Gift certificates

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You do not collect GST/HST on the sale of a gift certificate. When a customer gives you a gift certificate towards a purchase, calculate GST/HST on the price of the item and deduct the amount of the gift certificate as if it were cash.

A gift certificate is generally a voucher, receipt, or ticket:

  • that has a stated monetary value;
  • that can be redeemed on the purchase price of a good or service from a specific supplier (the supplier agrees to accept the gift certificate as money for the purchase);
  • for which money or other consideration in the amount of the certificate's face value is given to the issuer of the certificate; and
  • that has no intrinsic value. For example, commemorative gold or silver coins have an intrinsic value.

Example

You sell a taxable item for $100, and the purchaser gives you a $20 gift certificate toward the purchase.

Price of item
$100
GST ($100 × 5%)
5
Subtotal
$105
Less gift certificate
− 20
Customer pays 
$85


Other coupons

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Other coupons (whether reimbursable or not) that are not for one specific monetary discount may:

  • offer a different percentage off the price of an item (such as 10% off the purchase of 5 or fewer boxes and 20% off the purchase of 6 or more);
  • offer an item for no charge if another item is purchased (such as two-for-one coupons); or
  • contain more than one monetary discount such as 25¢ off a 750 ml soft drink, or 50¢ off a 1.5 litre soft drink.

These coupons reduce the selling price of an item before GST/HST is added. Therefore, deduct the value of the coupons from the selling price before calculating GST/HST.


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Date modified:
2016-09-30