Adjustments to GST/HST for Promotional Offers
GST/HST applies to the value of the "consideration" for taxable supplies; the term is defined to mean the amount payable for a supply. The consideration ultimately payable by a purchaser may be reduced, for example, if the supplier or manufacturer offers coupons, rebates, discounts, and credits. If the purchaser is charged tax on the pre-reduction price, there are rules governing the adjustment of the overall amount of GST/HST to reflect the consideration actually payable: some rules refund an amount to the purchaser (Excise Tax Act sections 232 and 261), while others treat the reduction as tax-inclusive and credit the supplier (ETA paragraph 181(3)(b) and section 181.1). However, in Tele-Mobile Company Partnership (2012 TCC 256), the supplier was unable to meet the technical requirements for the latter set of relieving rules.
At issue were certain incentives that Tele-Mobile (Telus) offered to entice customers to sign up for long-term wireless telephone plans. In particular, customers who purchased telephones from third-party dealers and signed up for a telephone plan with Telus received a credit from Telus on their subsequent bill for telephone services (the billing credit). Telus charged customers GST/HST on the full amount of the telephone bill before applying the billing credit.
Telus claimed input tax credits (ITCs) for the billing credit under the coupon rules (ETA paragraph 181(3)(b)), which allow a supplier to claim ITCs for the tax fraction (for example, 13⁄113) of a coupon if the supplier accepts, as consideration for a taxable supply, a coupon entitling the purchaser to a reduction of the price for the supply equal to a fixed dollar amount or fixed percentage specified in the coupon. However, the court concluded that the billing credit did not meet the requirements of the coupon rules: it was not a "coupon" (defined to include a voucher, receipt, ticket, or other device) because it was not a "thing" entitling the purchaser to a reduction; rather, it was the reduction itself. Moreover, the billing credit did not have a "specified" fixed amount of reduction, and it was not "accepted" as consideration. It was simply a discount offered when purchasers signed up for telephone plans.
Alternatively, Telus based its ITC claim on the rebate rules (ETA section 181.1), which allow a person to claim ITCs for the tax fraction of a rebate when the person has made a taxable supply of property or a service, pays the purchaser a rebate in respect of the property or service (whether acquired from the particular person or someone else), and provides with the rebate a written indication that it includes the tax. The court concluded that the billing credit did not qualify because the invoicing did not provide sufficient written indication that the billing credit included the tax.
The court acknowledged that denying Telus's ITCs "may well breach the spirit of sections such as s. 181, 181.1 and 232 of the ETA, which maintain the integrity of a system that imposes tax on a recipient on the value of the consideration for the supply, ensuring tax is exigible on the net consideration an end consumer pays. I am troubled by the result that the Government may have got a windfall in this situation." However, the court found that Telus's billing credit simply did not meet the requirements of the rules.
Although Telus was unable to rely on the coupon and rebate provisions in this instance, other relieving mechanisms might have been available. For example, Telus could have issued credit notes to its customers and refunded the tax on the basis that it was erroneously charged before the billing credit was applied (ETA subsection 232(1)), although--in contrast to ITCs for the tax-included amount of the reduction--there was no direct benefit to the supplier. The customers could have also applied directly to the CRA for a refund (ETA section 261), subject to a two-year limitation period.
Although the point is not discussed above, similar reasoning applies to the mail-in rebate that Telus offered to customers who purchased eligible telephones.
B.S. (Simon) Thang