Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1) Can donors under the program claim a donation tax deduction under section 110.1 or a donation tax credit under section 118.1? (2) Can the merchants under the program claim a deduction for rebates paid to Cardholders?
Position: Unable to confirm. General comments provided.
Reasons: Questions of fact and general law.
Author: Campbell, Alison
Section: Sections 110.1, 118.1, 149.1, and subsections 248(30) - (32), 9(1), 18(1), 67(1)
December 10, 2018
Re: Rebate Donation Program
This is in reply to your email of August 7, 2017 and letter of November 16, 2017 and our telephone conversation of November 22, 2018 wherein you requested comments on whether rebates earned by a cardholder under a loyalty card program qualify for a tax credit or deduction where the cardholder directs the rebate amount to a registered charity that participates in the program. You also ask whether the rebate paid by a participating merchant under the program is deductible for tax purposes. We apologize for the delay in our response.
This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R8, Advance Income Tax Rulings and Technical Interpretations.
The tax consequences to participants in a particular loyalty program arrangement depend on the legal relationships created among the participants under the relevant agreements. The particular facts related to any transaction undertaken by a taxpayer with regards to such programs would also need to be considered in determining the tax consequences that may apply. We are prepared however, to provide you with the following general comments.
Charitable Donation Tax Credits and Deductions
An individual is allowed a non-refundable tax credit under section 118.1 of the Act for the eligible amount of a gift the individual makes to a qualified donee. If the gift is made by a corporation, section 110.1 of the Act allows the corporation to deduct the eligible amount of the gift in calculating taxable income. The eligible amount of a gift is defined as the amount by which the fair market value of the property that is the subject of a gift exceeds the amount of the advantage, if any, in respect of the gift. The definition of qualified donee in subsection 149.1(1) of the Act includes registered charities.
As explained in Income Tax Folio S7-F1-C1, Split Receipting and Deemed Fair Market Value, because the term gift is not defined in the Act, it is necessary to refer to the applicable common or civil law for its meaning. Under the common law, "a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor" (The Queen v Friedberg,  1 CTC 1, 92 DTC 6031 (FCA)). Generally, for purposes of sections 110.1 and 118.1, a gift under common law is made if a taxpayer has donative intent, and all three of the following conditions are satisfied:
* there must be a voluntary transfer of property to a qualified donee;
* the property transferred must be owned by the donor; and
* no benefit or consideration must flow to the donor.
The amount of the advantage is defined as the total value, at the time the gift is made, of any property, service, compensation, use or other benefit that the taxpayer obtained, received or enjoyed as consideration for, in gratitude for or in any other way related to the gift. An advantage might exist even though it is not received at the time of the gift. The advantage might accrue either to the taxpayer or to a person or partnership not dealing at arm's length with the taxpayer. Furthermore, it is not necessary that the advantage be received or receivable from the qualified donee. Any advantage in respect of a gift must be clearly identified and its value ascertainable. If the value of the advantage cannot be reasonably ascertained, the eligible amount of the gift cannot be determined and an official receipt cannot be issued.
More information on determining whether a gift has been made and the rules related to advantages, can be found in Income Tax Folio S7-F1-C1.
Deductibility of Rebates Paid by Merchants
Under subsection 9(1) of the Act, a taxpayer's income from a business or property is the "profit" therefrom for the year, subject to the particular rules set out in Part I of the Act. For instance, paragraph 18(1)(a) of the Act provides that no outlay or expense is deductible in computing the income of a taxpayer from a business or property, unless it was made or incurred for the purpose of gaining or producing income. Further, paragraph 18(1)(b) of the Act denies the deduction of outlays and payments on account of capital. The deduction of any outlay or expense that was made or incurred for the purpose of gaining or producing income from a business or property is also subject to the general rule in section 67 of the Act that such outlays or expenses be reasonable in the circumstances.
We trust our comments will be of assistance.
Financial Institutions Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.
© Her Majesty the Queen in Right of Canada, 2019
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2019