In The Toronto-Dominion Bank v. The King, 2024 TCC 50 ("TD Aeroplan"), the Tax Court of Canada (the "Court") considered whether an Aeroplan Mile is a "gift certificate" within the meaning of section 181.21 of the Excise Tax Act ("ETA").
Toronto-Dominion Bank ("TD Bank") entered into an Affinity Program Agreement with Aimia Canada Inc. ("Aeroplan") which allowed TD Bank to offer Aeroplan Miles2 to users of certain TD Visa Cards (the "Agreement"). Aeroplan invoiced TD Bank for various amounts under the Agreement and applied goods and services tax/harmonized sales tax ("GST/HST") to the amounts charged. TD Bank paid the GST/HST invoiced, but later applied for rebates on the basis that it had paid the GST/HST in error.3
TD Bank asserted that Aeroplan supplied it with Aeroplan Miles under the Agreement and that Aeroplan Miles were gift certificates. TD Bank relied on section 181.2 of the ETA, which deems the issuance or sale of a gift certificate for consideration to not be a supply. The Crown took the position that Aeroplan was making a taxable supply of promotional and marketing services to TD under the Agreement. In the alternative, the Crown argued that Aeroplan Miles were not gift certificates.
The Issues
The Court determined that there were two main issues to consider:
- Was the predominant element of the supply that Aeroplan made to TD promotional and marketing services or the right to allocate Aeroplan Miles to its cardholders?
- If the predominant element was the right to allocate Aeroplan Miles, is an Aeroplan Mile a "gift certificate" within the meaning of section 181.2 of the ETA?
Analysis
Aeroplan supplied TD with several different goods and services under the Agreement. As such, before determining whether the predominant element of the supply made by Aeroplan to TD was promotional and marketing services or the right to allocate Aeroplan Miles, the court had to first establish what was being provided by Aeroplan to TD under the Agreement and second, had to determine whether what was being provided by Aeroplan under the Agreement was a single supply or multiple supplies.
When more than one good or service is supplied, it is necessary for the Court to (i) consider what was provided; (ii) establish whether it is a single compound supply or multiple supplies; and (iii) determine how the resulting supply should be treated. The parties agreed that the goods and services supplied were part of a single compound supply, and the Court agreed.
Having determined that Aeroplan made a single compound supply to TD under the Agreement, Justice Graham was required to determine the predominant element of that supply. The Court looked at both the traditional test4 to determine the predominant element of the supply as well as the test from the recent CIBC (FCA)5 case. In the Court's view, there was no commercial efficacy to the Agreement without the Aeroplan Miles. Justice Graham stated, "[t]here would have been no point in obtaining marketing services from Aeroplan, exclusive rights to use the Aeroplan logo, and data analytics about existing and potential customers if TD could not provide those customers with Aeroplan Miles". 6
Turning to the second question at issue, the Court had to determine whether Aeroplan Miles constituted "gift certificates" for purposes of the ETA. If they were gift certificates, the Court had to allow the appeal. The term "gift certificate" is not defined in the ETA. Subsection 181(1) of the ETA defines a "coupon" to include "a voucher, receipt, ticket or other device but does not include a gift certificate or a barter unit (within the meaning of section 181.3)". Based on section 181.3, it was evident that the Aeroplan Miles were not barter units, such that the Court's decision turned on whether the Aeroplan Miles were coupons or gift certificates for GST/HST purposes. To answer that question, the Court had to determine how to differentiate a gift certificate from a coupon.
Justice Graham established that the four questions to determine whether an Aeroplan Mile was a gift certificate were as follows:
What is the ordinary meaning of the term "gift certificate"?
Justice Graham considered cases where the courts have previously dealt with gift certificates7 and determined that the ordinary meaning encompasses both pre-paid cards and service or goods vouchers.8
Does the context or purpose of the Act change that ordinary meaning?
Under a contextual and purposive analysis of section 181.2, the Court determined that Parliament only intended for pre-paid cards to be treated as gift certificates. Relying on statements made by Justice Visser in CIBC9, the Court found that Parliament intended for gift certificates to be the equivalent to money, such that to be a gift certificate, the device needed to have attributes similar to money. A pre-paid card is nothing more than a repository of money and functions in the same manner as a deposit. In that respect, the Court stated "[i]n the same way that subsection 168(9) only requires GST to be paid on a deposit when it is applied as consideration for a supply, section 181.2 only requires GST to be paid on a gift certificate when it is given as consideration for a supply."10
What characteristics does a gift certificate have?
Justice Graham specified that TD Bank must show that each individual Aeroplan Mile that it purchased was a gift certificate. He concluded that for a device to be a gift certificate, it must have the following key characteristics:
- The device must have a stated monetary value that either appears on the device's face or is retrievable electronically.
- It must be possible to transfer the device to a third party without additional payment to the issuer.
- The bearer must be entitled to apply some or all of the balance of the stored monetary value to the purchase price of goods or services purchased from either the issuer of the device or any other person who can lawfully accept the device as payment.
- The device may have some conditions, but any such conditions must not detract from the essential attribute of a gift certificate that it must have attributes similar to those of money.11
Does an Aeroplan Mile have those characteristics?
Justice Graham found that an Aeroplan Mile had none of these characteristics. An Aeroplan Mile did not have a stated monetary value, it was not transferable without paying a significant fee to Aeroplan, and the need to accumulate more Aeroplan Miles to use a single Aeroplan Mile was a significant condition on their use.12
The Court dismissed TD Bank's appeal and confirmed that Aeroplan Miles are not gift certificates.
Application to Points Programs
In many ways, the Tax Court's decision affirmed the CRA's administrative policy in GST/HST Policy Statement P-20213 relating to gift certificates, while providing additional detail regarding certain elements. As such, this decision may have repercussions for other loyalty points programs, particularly if they have treated their points as gift certificates. TD has appealed the decision of the Court to the Federal Court of Appeal. Hopefully, in rendering its decision, the Federal Court of Appeal will further clarify how one differentiates a coupon from a gift certificate for purposes of the ETA.
Footnotes
1. Section 181.2 reads as follows: "For the purposes of this Part, the issuance or sale of a gift certificate for consideration shall be deemed not to be a supply and, when given as consideration for a supply of property or a service, the gift certificate shall be deemed to be money".
2. Aeroplan Miles are points that can be redeemed through Aeroplan in exchange for travel rewards and various other goods and services.
3. The total rebate amount at issue was $141,060,608.
4. The traditional test for establishing the predominant element of supply asks you to determine the "commercial efficacy" of the arrangement. This test has been considered in Global Cash Access (Canada) Inc. v. The Queen, 2013 FCA 269; SLFI Group v. The Queen, 2019 FCA 217; Great-West Life Assurance Co. v. The Queen, 2016 FCA 316.
5. Canadian Imperial Bank of Commerce v. The Queen, 2021 FCA 96 ("CIBC (FCA)"). The majority in CIBC (FCA) relied on an explicit statement in the relevant agreement that set out the parties' view of the predominant element of the supply. There was no similar statement in the Agreement under consideration in TD Aeroplan.
6. The Court stated that TD did not actually acquire the Aeroplan Miles under the Agreement, but rather it acquired the right to cause Aeroplan to issue Aeroplan Miles. Justice Graham said that for the purpose of the issues here, this did not have an impact on the outcome so the decision refers to TD Bank as having purchased Aeroplan Miles.
7. CIBC (FCA); Canasia Industries Limited v. The Queen, 2003 TCC 33; Royal Bank of Canada v. The Queen, 2007 TCC 281; and Canadian Imperial Bank of Commerce v. The Queen, 2019 TCC 79.
8. At paragraph 136, a pre-paid card is defined as "[o]ne device can be used like money to purchase goods or services from the issuer or anyone else who accepts the device. A typical example would be a $100 gift card from a movie theatre chain that the bearer could use to pay for movies, popcorn, etc.". In the same paragraph a service or good voucher is defined as "The other device requires the issuer to provide the bearer a certain good or service free of charge. A typical example would be a voucher for a one-hour spa treatment."
9. 2019 TCC 79.
10. See TD Aeroplan at paragraph 145.
11. TD Aeroplan at para 238.
12. TD Aeroplan at para 239.
13. GST/HST Policy Statement P-202, Gift Certificates (April 2012).
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