Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 128262
Business Number: […]
September 17, 2012
Dear [Client]:
Subject: GST/HST RULING AND INTERPRETATION
[…][food supplied in variety Pre-Pack]
Thank you for your letter concerning the application of the goods and services tax (GST)/harmonized sales tax (HST) to the […][food supplied in variety Pre-Pack] (the Pre-Pack). We apologize for the delay in responding to you.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Our understanding of the facts is as follows:
1. The Pre-Pack is sold by […] (the manufacturer).
2. You have described the Pre-Pack as follows:
* A pre-packaged assortment of meals and snacks […].
* It is sold by the manufacturer as a single stock keeping unit (sku) containing an assortment of [#] different individual skus packaged and wrapped in a display ready box which is typically placed in the centre aisle of the retail location and unwrapped.
* When taking into account the products included in the Pre-Pack, […]% of the products are taxable and not zero-rated based upon the retail value of the products.
* The Pre-Pack is sold as a single sku for a single price.
3. You have indicated that the manufacturer is selling the Pre-Pack as a convenience to the retailer and also as a marketing tool to encourage the consumer to purchase a variety of […][the Company] products while in store. It is packaged in a display ready box and contains an assortment from the […][Company]. The products will be sold individually to the end consumer. It is your view that the Pre-Pack is a single supply to the retailer.
4. In [correspondence] dated [mm/dd/yyyy], […], an employee of the manufacturer, provided the following additional information: […]
[…][The employee] also provided the following information which lists the components of the Pre--Pack and the wholesale as well as the retail prices: […]
Retail Wholesale
Total Value: taxable product $[…] $[…]
Total Value: taxable + zero-rated $[…] $[…]
Percentage Taxable […]% […]%
5. In the above Pre-Pack breakdown you have stated the tax status of each of the [#] products included in the Pre-Pack. […]
6. […].
7. In a discussion with […], another employee of the manufacturer, she confirmed that the Pre-Pack was assembled based on the retailer’s instructions. […] advised that the manufacturer’s […] initially recommended that zero-rated products not be grouped in a Pre-Pack with other products that are taxable and not zero-rated.
8. […] provided an invoice showing how the sale of the Pre-Pack was invoiced to the retailer. The invoice included many other items along with the Pre-Pack. The Pre-Pack was invoiced as a separate line item with details of billing quantity and unit price. Based on the invoice provided, it appears that, currently, each Pre-Pack retails for $[…].
RULING REQUESTED
You would like to know whether supplies of the Pre-Pack are zero-rated under section 1 of Part III of Schedule VI to the ETA.
In addition, you have stated that the manufacturer has several similar variety pack single skus and the mix of taxable (not zero-rated) vs. zero-rated products are different in each situation. You are looking for a consistent way to determine the tax status of such skus. You have also asked the following questions:
1. Would paragraph 168 of GST Memoranda Series 4.3 Basic Groceries apply to this situation? If the split of taxable (not zero-rated) vs. zero-rated products were greater than 50% taxable, would you be required to charge GST/HST on the price of the single sku variety pack?
2. Would section 138 of the ETA be applicable?
RULING GIVEN
Based on the facts set out above, we rule that the Pre-Pack constitutes multiple supplies of individual packages of meals and snacks […]. As multiple supplies are being made, each product would have to be evaluated on an individual basis to determine whether the product is zero-rated under section 1 of Part III of Schedule VI to the ETA. The total amount of GST/HST charged in respect of the Pre-Pack will depend on the amount of the products included in the Pre-Pack that are taxable and not zero-rated for GST/HST purposes.
We are unable to provide rulings on the questions you have asked regarding the tax status of similar variety packages, as these questions do not relate to a specific variety package. However, we have provided an interpretation on the subject raised in the questions, which follows the explanation for the ruling.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador and 12% in British Columbia) unless the supply is zero-rated. Pursuant to subsection 165(3), the tax rate in respect of a zero-rated supply (i.e., a supply included in Schedule VI to the ETA) is 0%.
Under Part III of Schedule VI to the ETA, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI zero-rates supplies of foods or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such foods or beverages, other than supplies included in paragraphs (a) to (r) of that section.
In your submission, you are of the opinion that the Pre-Pack is a single supply that includes goods which are both taxable (not zero-rated) and zero-rated and accordingly, the provisions of paragraph 168 of GST/HST Memorandum 4.3 Basic Groceries (MS 4.3) will apply to the supply. This paragraph will not apply to the supply of the Pre-Pack for the reasons given in the Interpretation section of this letter.
When a person combines two or more goods together, it must be determined whether the person is making a single supply or multiple supplies. Policy Statement P-077R2: Single and Multiple Supplies sets out criteria to determine if a transaction consists of a single supply or multiple supplies.
In our view, an analysis of the provision of the Pre-Pack using the criteria in the above policy statement leads to the conclusion that the goods packaged in the Pre-Pack are multiple supplies of individual meal and snack products […] for the following reasons:
* Although the manufacturer is the only supplier, the manufacturer is supplying both […] meals and […] snacks to the retailer. The products within the Pre-Pack are sold individually by the retailer to the end consumer.
* The Pre-Pack is an assortment of meals and snacks […]. The arrangement was assembled by the manufacturer at the request of the retailer. The Pre-Pack is not normally provided by the manufacturer to all customers.
* Each product contained in the Pre-Pack is available for purchase with a single sku. The retailer does not have to buy the Pre-Pack to be able to buy a particular product contained therein. Furthermore, each product contained within the Pre-Pack is packaged and labelled individually.
* Although the Pre-Pack is invoiced as a single line item, it should be noted that each product within the Pre-Pack can be sold individually and separate wholesale and retail prices have been established for each of the individual products.
* The Pre-Pack is assembled with direction from the retailer. The retailer is aware of all the products (in detail) that form part of the Pre-Pack.
* The display box serves merely as a shipping medium through which multiple products are shipped and eventually displayed. The display box does not contain any labelling or other required consumer information normally found on consumer packages.
INTERPRETATION GIVEN
In your letter you have stated that the manufacturer has several similar variety packs which are single skus and the mix of taxable (not zero-rated) vs. zero-rated products are different in each situation. You have asked for a consistent method to determine the tax status of such variety packs. Where the facts with respect to the variety packs are similar to those of the Pre-Pack, each product within the variety pack would have to be evaluated on an individual basis to determine whether the product is zero-rated under section 1 of Part III of Schedule VI to the ETA. The total amount of GST/HST charged in respect of the variety pack will depend on the amount of the products included in the variety pack that are taxable and not zero-rated for GST/HST purposes.
For ease of reference, we have reproduced your questions below, with our responses immediately following each one.
Question 1
Would paragraph 168 of MS 4.3 apply to determine the tax status of other variety packs with a single sku which are similar to the Pre-Pack? If the split of taxable (not zero-rated) vs. zero-rated products were greater than 50% taxable, would you be required to charge GST/HST on the price of the single sku variety pack?
Response
Paragraph 168 of MS 4.3 reads as follows:
“Generally, where a package of multiples of similar foods or beverages contains more than 50% otherwise zero-rated goods, the supply of the package will be zero-rated. Where a package of multiples of similar foods or beverages contains 50% or less otherwise zero-rated goods, the supply of the package will be taxable at 5% GST or 13% HST, as applicable.”
In the context of paragraph 168 of MS 4.3, the word “package” refers to a package for sale to a consumer. Paragraphs 163 to 168 of MS 4.3 address such goods as gift baskets, lunch and snack combinations, and the sale of a combination of peppercorns and a peppermill, all of which are packaged for sale to consumers. A display box, such as the Pre-Pack, is not a package for sale to a consumer. Display boxes are designed to be opened and set-up by the retailer to create an eye catching display from which the consumer may purchase any number of individually packaged products. Often, the packaging for display boxes does not have the required consumer information printed on its external package as is the case with packages sold to consumers. Consequently, the supply of the Pre-Pack display box would not be considered a “package” for the purposes of paragraph 168 of MS 4.3.
Question 2
Would section 138 of the ETA apply to this arrangement?
Response
As the provision of the Pre-Pack constitutes multiple supplies of individual products, section 138 may be relevant. However, it must be kept in mind that the application of section 138 hinges on one good or service being incidental in comparison to the other. In the case of the Pre-Pack, none of the supplies are incidental in comparison to the others. Each individual product has equal standing within the display box. Therefore, as there is no incidental supply under this arrangement, section 138 would not apply.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (905) 721-5220. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Zubair Patel, CGA
Basic Groceries and Point-of-Sale Rebates Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
Email this Content