GST POLICY STATEMENT

Please note that this policy statement is currently under review.

P-202 Gift Certificates

Date of Issue

February 20, 1996

Subject

Gift Certiciates

Legislative Reference(s)

Former subsection 157(2) of the ETA - Gift certificates Section 181.2 of the ETA - Gift certificates

National Coding System File Number(s)

11755-14

Effective Date

January 1, 1991

Text

Issue and Decision

The term "gift certificate", as it is used in section 181.2 of the Excise Tax Act ("the Act"), has no statutory definition. The Department has identified a series of characteristics of a gift certificate from the common meaning of the term. Those characteristics can be summarized as follows:

A gift certificate is a "device" (e.g. voucher, receipt, ticket) which,

1) has a stated monetary value,

2) can be redeemed on the purchase of property or a service from a particular supplier; that is, the supplier agrees to accept the device as consideration, or a part hereof, in respect of the purchase of property or a service,

3) for which consideration is given in the amount of the stated value, and

4) which has no intrinsic value.

The determination of whether property, which otherwise would qualify as a gift certificate, has an intrinsic value will require a certain degree of judgment on the part of departmental officials applying this policy. Generally, the value inherent in the property will be evident from the circumstances surrounding its sale. If the purchase of the property is promoted as something more than a device which may be used as a partial payment towards a future purchase, the possibility that the property has value in itself, should be examined.

Sample Ruling

Our understanding of the facts and transactions is as follows:

Statement of Facts

A retailer is issuing commemorative certificates as part of its celebration of 50 years of being in business. The "certificate" is called a gift certificate, has a face value and sale price of $100 and can be redeemed when merchandise is subsequently purchased at the retailer's store, for credit of $100. The certificate is lettered in gold leaf and includes a pictorial history of the development of the business. The layout of the certificate makes it suitable for framing and the retailer offers to provide the framing service to persons purchasing the certificate to keep as a souvenir, at a minimal charge.

Transaction

The retailer sells a certificate to a customer and charges $100.

Ruling Requested

When the retailer sells a certificate to a customer, the retailer is entitled to use the provisions of section 181.2 of the Excise Tax Act ("the Act") such that the tax otherwise payable at the time of the sale of the certificate, becomes payable at the time the certificate is presented to the retailer by the customer as a $100 credit towards the purchase of merchandise offered for sale by the retailer.

Ruling Given

The provisions of section 181.2 of the Act will not be applicable to the retailer at the time the certificate is sold to a customer. At the time the certificate is sold to the customer for monetary consideration of $100, tax in the amount of $7.00 must be charged and collected by the retailer. Should the customer choose to redeem the certificate at a later time towards the purchase of other goods from the retailer, the redemption of the certificate would be treated as the return of a good and subject to section 232 of the Act.

This ruling is subject to the general limitations and qualifications outlined in the GST Memoranda Series (1.4). We are bound by this ruling provided that none of the above issues is currently under audit, objection or appeal, that there are no relevant changes in the future to the Excise Tax Act, and that you have fully described all necessary facts and transactions for which you requested a ruling.

Rationale

Property which is called a gift certificate must possess all of the following characteristics in order to qualify as such for purposes of section 181.2:

A gift certificate must be a "device" (e.g. voucher, receipt, ticket) which,

1) has a stated monetary value,

2) can be redeemed on the purchase of property or a service from a particular supplier; that is, the supplier agrees to accept the device as consideration, or a part thereof, in respect of the purchase of property or a service,

3) for which consideration is given in the amount of the stated value, and

4) which has no intrinsic value.

If all four of these characteristics are not satisfied, regardless of the fact that the property may be called a gift certificate, the provisions of section 181.2 will not apply to defer tax at the time of sale of the property.

Although the certificate being sold by the retailer is called a gift certificate and it possesses the first three characteristics of a gift certificate, it does not possess the fourth characteristic of having no intrinsic value. Part of the marketing and advertising campaign which surrounds the sale of the certificate, promotes the certificate as a souvenir which can be kept and framed to become a permanent possession. A gift certificate can have no intrinsic value. Its only value is in its eventual redemption. The certificate in question has been designed in such a manner as to appeal to a customer as a souvenir. As a consequence, the certificate will be treated as having a value of its own, for purposes of GST and will not qualify for use of the provisions of section 181.2.