GST/HST Applies To A Bank's Payments In Connection With Its Participation In A Loyalty Rewards Program: Federal Court Of Appeal Upholds Tax Court Decision

• Published date: 22 June 2021
• Subject Matter: Finance and Banking, Tax, Financial Services, Sales Taxes: VAT, GST, Tax Authorities
• Law Firm: Stikeman Elliott LLP
• Author: Mr Jean-Guillaume Shooner

In a decision released on May 20, 2021, the Federal Court of Appeal ("FCA") upheld the Tax Court of Canada's decision that the supply of Aeroplan Miles to a Canadian bank (the "Bank") pursuant to the Aeroplan Mile loyalty program ("Aeroplan Mile Program") was in fact part of a single supply of promotional and marketing services by Aeroplan Limited Partnership ("Aeroplan") to the Bank and thus subject to GST/HST.

• The Bank's main arguments on appeal were that the supply that was made by Aeroplan was the provision of Aeroplan Miles to the Bank's customers, that the Aeroplan Miles must therefore have been the predominant supply made by Aeroplan under the agreement, and that Aeroplan Miles are "gift certificates" for the purpose of the Excise Tax Act (the "Act").
• The FCA dismissed the Bank's appeal and found that the Tax Court judge did not err in his interpretation that the predominant supply was a single supply of promotional and marketing services However, the FCA decided not to pronounce on whether the Aeroplan Miles are "gift certificates" for the purpose of the Act.

Background and Judicial History

In 2003, Air Canada and the Bank entered into a credit card agreement which governed the Bank's participation in the Aeroplan Mile Program (the "Credit Card Agreement"). The Credit Card Agreement was the basis of the supplies made by Aeroplan to the Bank and the subsequent payments made by the Bank to Aeroplan for its participation in the Aeroplan Mile Program (the "Aeroplan Payments").

Under the Credit Card Agreement, Aeroplan essentially provided all the Bank's cardholders with membership in the Aeroplan Mile Program. It credited Aeroplan miles to those members when they made credit card purchases, whereupon it would invoice the Bank for the credited miles. Moreover, Aeroplan also undertook to provide the Bank with various referral activities or services and marketing related to the Bank's credit cards (all these supplies to the Bank by Aeroplan, including the Aeroplan miles, are defined as the "Aeroplan Supplies").

Aeroplan collected the applicable GST/HST on the Aeroplan Payments on the basis that the Aeroplan Supplies were taxable supplies for the purposes of the Act. While the Bank did pay the GST/HST as charged by Aeroplan, the matter likely became a source of contention between the parties, as the Bank took the position that the Aeroplan Supplies were in fact supplies of financial services and, as such, should be exempt from GST/HST under the Act.

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