The appellant (RBC) submitted that it offered loyalty reward points to its cardholders to entice them to use their cards and increase the volume of interchange fee revenues, so that the costs to it of honouring loyalty points when redeemed were a direct input to generating the interchange fee revenues which, in part (regarding cardholder purchases from foreign merchants) were zero-rated. In rejecting this position, so that RBC had no input tax credit (ITC) entitlement regarding its GST/HST incurred in honouring points redemptions, Smith J stated (at para. 109):
[E]xpenses incurred by RBC in the redemption of loyalty reward points were inextricably linked and an integral component of the Appellant’s agreement to extend credit pursuant to the Cardholder Agreement. Although the presentation of the RBC Reward Card triggered the Appellant’s entitlement to the interchange fees, I find that this connection is not sufficient for me to conclude that expenses incurred in the redemption of loyalty reward points earned from transactions involving non-resident merchant–acquirers were part of a taxable or zero-rated supply.