The Tax Court of Canada (the "Court")
recently confirmed that participation in certain reward and loyalty
programs, such as Aeroplan, may have significant tax implications
for Canadian banks, and other issuers of credit card products.
In the case at hand, a large Canadian bank sought a rebate for
GST (in an amount of over 44 million dollars) relating to payments
made under an Aeroplan loyalty program (the
"Program"). Under the Program, the bank
would issue an Aeroplan branded credit card to a customer, who
could then make purchases with the card. Certain purchases made
with the card would earn the customer points or "Aeroplan
Miles" (the "Miles"), which could
then be used to redeem rewards offered by Aeroplan. Pursuant to the
Credit Card Agreement (the "Agreement")
governing the bank's participation in the Program, Aeroplan
would invoice the bank for the cost of the Miles issued by Aeroplan
to the credit card holder, at an amount stipulated in the
Agreement. The
