Reproduced from Commodity Tax News, September 2012, Volume 19, Issues 5–6
Sophia Chen, Toronto
Many companies offer group deals that give consumers the option to purchase vouchers online, generally at a discount. To validate the voucher, a specific number of vouchers must be purchased by consumers. The vendor offering the group deal vouchers retains a portion of the fees paid by consumers as commission, and the balance is remitted to the supplier of the good or service being purchased.
For example, a one-night hotel stay typically costing $125 may be offered for $80 if 100 people purchase the deal. If the quota is met, an agreed percentage of the $8,000 collected (e.g., 70%) is sent to the hotelier to cover the offer, and the voucher vendor retains the balance as commission.
In the past, there was some debate as to whether these vouchers are considered gift certificates or coupons, given that the tax treatment differs between the two. The Canada Revenue Agency recently clarified that it considers these vouchers to be gift certificates.1
The term “gift certificate” is not defined in the Excise Tax Act, but based on the revised policy statement, a gift certificate is considered to be a device with the following attributes:
- It has a monetary exchange value that is evident on the certificate or easily determined by the parties involved in the transaction. Note that a voucher will still qualify if its current value is recorded in an electronic database and it may be “topped up” by the holder.
- It can be issued or sold for consideration by the supplier of the property or service or party for use at a particular supplier. The consideration paid does not necessarily have to equal the value of the certificate.
- It is accepted as payment or partial payment for the property or service.
- It does not require the bearer to do anything to redeem the certificate, other than to present it as payment or partial payment for the property or services being acquired. For example, the holder of the certificate is not required to meet other conditions, such as purchasing one item to get another free, or spending a prescribed minimum amount.
- It has no intrinsic value. The certificate should not have any value other than its monetary exchange value.
For GST/HST purposes, the issuance or sale of a gift certificate for consideration is deemed not to be a supply, and when a gift certificate is redeemed, it is deemed to be money. Therefore, the sale of a gift certificate does not attract GST/HST, and when it is redeemed, tax applies on the value of the total consideration paid, including the value of the gift certificate and any additional money tendered.
The revised policy statement includes many examples of voucher-type instruments that either qualify or do not qualify as gift certificates. For example, gift cards normally qualify, while gift certificates given as rewards to employees do not.
The revised policy also includes the scenario of deal-based vouchers:
- A registered, web-based company markets vouchers that are redeemable for goods and services supplied by local merchants. The deals are promoted by email and social media, and are available if a certain number of people purchase them.
- Purchasers who take the deal receive an electronic voucher, which is printed and redeemed at the merchant’s premises.
- The web-based vendor of the voucher charges the purchaser an amount for the voucher, retains a portion as commission, and remits the balance to the merchant.
- The “deal of the day” described in the example is as follows: “Pay the promotional price of $20 for a five-course meal at RestaurantCo. Valued at $60, discount of 67%. Valid from Monday to Thursday.”
The commentary for the example indicates that the voucher sold under these conditions qualifies as a gift certificate: it is for a supply of property (the meal indicated on the voucher), it is issued for consideration ($20), it is accepted as consideration by the merchant, and the holder of the voucher is not required to meet any further conditions in order to use the voucher other than presenting it to the merchant. Therefore, the merchant must account for GST/HST on the promotional price of the meal ($20).
The example also illustrates another tax consequence of these voucher arrangements. Because the voucher qualifies as a gift certificate, the online vendor collects no tax at the time the voucher is supplied; however, the amount the vendor retains as commission represents consideration for the supply of marketing or promotional services in respect of the voucher. Unless it is a small supplier, the vendor would be required to account for tax on this taxable supply.
A recent news release from Revenu Québec confirms that these vouchers are also considered to be gift cards or gift certificates for QST purposes. As is the case for GST/HST, QST will not be collected when the voucher is sold, but when it is redeemed the merchant will collect tax on the basis of the total consideration paid for the supply.
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