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GST/HST Treatment of Coupons

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Sales Taxes ->GST/HST -> GST or HST treatment of coupons, manufacturers' rebates, and gift certificates

GST/HST treatment of coupons, manufacturers' rebates, and gift certificates

Have you sometimes wondered why, when you buy an item which is on sale, you have to pay GST or HST on the original price?  Many stores have in-store coupons that they apply, without the customer having to bring the coupon to the store themselves.  Often, when a coupon is applied to reduce the price, the tax is charged on the full price before the coupon.

There are different types of coupons, and two different treatments for these coupons.  Sometimes the GST or HST is charged on the selling price before the amount of the coupon is applied, and sometimes it is charged based on the net amount after the coupon is applied.

Reimbursable coupons

These coupons are also called manufacturers coupons.  The vendor accepting the coupon from a customer is entitled to be reimbursed by the manufacturer or another third party.  When this type of coupon is used for a taxable purchase, the GST or HST is applied to the full price of the item, and then the value of the coupon is deducted.  For instance, for the purchase of a taxable item with a price of $10 in Ontario, with a $3 coupon being accepted from the customer, the HST would be calculated as follows:

Price of item $10.00
HST @13% 1.30
Subtotal $11.30
Less coupon (3.00)
Net charge to customer $8.30

 

Non-reimbursable coupons

These coupons are issued by the vendor, so the vendor is not being reimbursed by some other entity for the value of the coupon.  The coupon may entitle the customer to a reduction of a fixed dollar amount or a percentage amount.  With this type of coupon, the vendor can either

bullet reduce the price of the item before calculating the GST or HST, so the tax charged is lower, or
bullet treat the coupons in the same manner as a reimbursable coupon, and charge the GST or HST on the full price of the item before deducting the coupon amount.

If the coupon is not treated by the vendor as a reimbursable coupon, the following example shows how the HST would be calculated in Ontario, using an item priced at $10 and a $3 coupon:

Price of item $10.00
Less coupon (3.00)
Subtotal $7.00
HST @13% .91
Net charge to customer $7.91

Gift certificates

When gift certificates are used to pay for part of a taxable purchase, the GST or HST is calculated based on the price of the item, and then the amount of the gift certificate is deducted, as if it were cash, as in the following example:

Price of item $100.00
HST @13% 13.00
Subtotal $113.00
Less gift certificate (20.00)
Net charge to customer $93.00

 

Manufacturers' rebates

Manufacturers' rebates are usually provided to the customer after the customer has purchased the product at full price from a retailer, with the customer mailing in a form to get the rebate.  Sometimes the rebate is provided through the retailer when the goods are purchased.  In either case, the retailer collects the GST/HST on the full retail price before deducting the rebate amount.

If the customer making the purchase and receiving the rebate is a GST/HST registrant, and entitled to claim an input tax credit (ITC) for the GST or HST, special rules apply to manufacturers' rebates.  If the customer has been made aware in writing that the rebate includes GST/HST, then the customer will have to remit GST/HST equal to 5/105ths for GST, or 12/112ths, 13/113ths, or 15/115ths of the rebate amount, depending on the GST/HST rate.  For more information on this, see the Canada Revenue Agency (CRA) information on manufacturers' rebates.

Other coupons

Some other coupons are not for one specific monetary discount, such as:

bullet different percentage discounts being offered, depending on the quantity of items purchased, such as 5% of the price of one of an item, and 10% off the purchase of 2 or more of the same item
bullet BOGO, or buy one, get one free coupons, or
bullet different discount amount depending on the size of item purchased, such as $1.00 off the price of a one litre container of a taxable product or $2.50 off of the price of a two litre container of the same product

With this type of coupon, the GST or HST is calculated based on the amount after deducting the value of the coupon.

Vendor Input tax credits re coupons

When a vendor accepts a reimbursable coupon, or a non-reimbursable coupon which is being treated as a reimbursable coupon, an input tax credit (ITC) can be claimed for the tax portion of the coupon, which will be:

bullet5/105 for GST
bullet12/112 for BC, until March 31, 2013, after which it will be 5/105
bullet15/115 for Nova Scotia, or
bullet13/113 in the remaining participating provinces

When the coupon amount has been deducted from the price of an item before calculating the GST or HST, then no ITC would be claimed for the coupon.

For more information see How to treat coupons and gift certificates on the CRA website.

 

Revised: November 04, 2014

 

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