http://decisions.fca-caf.gc.ca/en/2013/2013fca149/2013fca149.html 
Tele-mobile Company Partnership v. The Queen is a recent (June 5, 2013) decision of the Federal Court of Appeal. Tele-mobile Company Partnership (“TELUS”) offered various promotional programs offering billing credits to certain subscribers who agreed to enter into long-term service contracts.
[4] TELUS applied the billing credits to its customers’ invoices after all the charges were totalled, which included the applicable Goods and Services tax (“GST”) calculated on all those charges. Thus, customers paid the GST (then applied at the rate of 7%) on the full consideration charged by TELUS for its service, and before the billing credits were applied.
Commencing in 2005 and 2006 TELUS started to claim GST input tax credits on these billing credits. In the first instance it took the position that these billing credits were “coupons” as defined in subsection 181(1) of the Excise Tax Act (“ETA”). In the alternative it took the position that they were rebates for the purposes of section 181.1 of the ETA. The Tax Court rejected the “coupon” argument but agreed that the billing coupons were rebates. Nevertheless the Tax Court found that they were not rebates entitling TELUS to input tax credits since there was no sufficiently clear written indication that portions of the rebate were on account of GST.
TELUS appealed to the Federal Court of Appeal. The decision makes short work of the “coupon” argument and is primarily concerned with whether the billing credits were “rebates” entitling TELUS to GST input tax credits.
The statutory language at issue was:
Rebates
181. 1 Where
(a) a registrant makes a taxable supply in Canada of property or a service (other than a zero-rated supply),
(b) a particular person acquires the property or service, either from the registrant or from another person,
(c) the registrant pays, at any time, a rebate in respect of the property or service to the particular person and therewith provides written indication that a portion of the rebate is an amount on account of tax, and
…
[Emphasis added]
The Federal Court of Appeal offered two examples of how the discount (rebate) could be applied:
[31] As a first option, the registrant remits the full GST charged for the supply, including the GST related to the rebate. It can proceed to claim an ITC pursuant to section 181.1 of the Excise Tax Act. But in order to do so, the registrant must provide written indication to the customer that a portion of the rebate is on account of tax. One reason for this is that, under this option, the customer is at a loss. Indeed, the actual rebate provided to the customer is less than its nominal value, i.e. the value of rebate is reduced by its GST component. The customer must be made aware of this. As an example:
Original price $100.00
GST (at the then rate of 7%) $7.00
Total Price $107.00
Less Discount (or rebate) $50.00
Customer’s disbursement $57.00
[32] As a second option, the registrant can compensate the customer by providing an enhanced rebate which takes into account the GST component of the rebate. By so enhancing the rebate, the registrant places the customer in essentially the same position as if the rebate had been applied to the original price prior to the calculation of the GST. The registrant thus “passes on” to the customer the input tax credit related to the rebate. The registrant can here also claim the ITC under section 181.1 of the Excise Tax Act, but in this case it is doing so not as a benefit to itself, but as part of a flow-though to the customer. The following example illustrates the matter:
Original price $100.00
GST (at the then rate of 7%) $7.00
Total Price $107.00
Less enhanced rebate $53.50
Customer’s disbursement $57.00
TELUS took the first option. It’s argument was that 7/107 of the $50.00 credit represented GST and “any Registrant worth its salt could quickly figure that out” [Tax Court decision, para. 46]
http://decision.tcc-cci.gc.ca/en/2012/2012tcc256/2012tcc256.html
The Federal Court of Appeal held that merely providing the customer with an opportunity to calculate and figure out the GST component did not meet the ETA’s requirement for a written indication that a portion of the rebate is an amount on account of tax.
[37] In light of its purposes, the written indication called for under section 181.1 of the Excise Tax Act must be more than a simple opportunity for the customer to calculate and figure out how the registrant (here TELUS) treated the GST aspects of the rebate.
[38] To sustain a claim to an input tax credit under section 181.1 of the Excise Tax Act, a registrant (here TELUS) must either break down the GST component of the rebate and indicate in writing the resulting amount to the customer, or alternatively, indicate in writing to the customer that a portion of the rebate is an amount on account of tax using the words of paragraph 181.1(c) of the Excise Tax Act or similar words. TELUS did not do so in this case.
The court dismissed the TELUS appeal.
This case illustrates that when one is dealing with an extremely complex statute such as the ETA one has to be very careful to dot one’s i’s and cross one’s t’s as the courts are normally not inclined to fill in the gaps for taxpayers.