14 July 1998 GST/HST Interpretation HQR0000764 - Zero-Rating of Velvet Antler

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Road
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Dear XXXXX

Thank you for your letters of June 11, 1997 and July 29, 1997 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to velvet antler. We apologize for the delay in the response.

In accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, an application ruling can only be issued where reference to a clearly defined fact situation of a particular registrant can be made. As your request is based on a hypothetical set of circumstances and not in respect to a particular registrant, an application ruling cannot be issued at this time. Alternatively, I am pleased to issue you the following interpretation which will elaborate on how the GST/HST applies to the questions raised in your letter.

Our understanding of the facts is as follows.

Statement of Facts

1. XXXXX) was incorporated as XXXXX[.]

2. x Velvet antler refers to the antler structure of all Cervid (deer, elk, reindeer, moose) species during its annual phase of rapid growth. At this stage, it is a blood-filled cartilaginous sponge, with just enough mineralization to support its own weight. This structure is completely unique to the deer species, and is recognized to be virtually the fastest growing living tissue, surpassed only by some mushrooms.

3. XXXXX farmers were raising deer, for at least the last two thousand years, specifically for the annual harvest of velvet antler.

4. In XXXXX, Canadian farmers, after sanction by government regulators and instruction by veterinarians and buyers, began harvesting and selling XXXXX from their livestock.

5. Since then, the industry has progressed rapidly and the production is expected to increase substantially in the next several years, in response to the strong market demand and the increasing population of XXXXX[.]

6. Velvet antler is consumed as a food in several different ways, depending largely upon the location where it is harvested and the cultural traditions of the consumer. Blood is collected from the cut surface immediately after removal and consumed with alcohol or other accompaniments.

7. After the blood has been collected, XXXXX is then cleaned, disinfected, treated with heat and/or steam to destroy any bacteria and then dried. In this form, it may be stored until it is consumed. The next steps in preparation are to remove the xx velvet" (the furry covering), then slice the antler into slices, which are eaten in soups, or grind it into a powder form, which is eaten in soups or in gelatin capsules. The powder is also used to prepare alcohol - based liquors.

8. Most Canadian farmers sell their x harvested antlers in a frozen form. For many years, the buyers were typically of Asian descent, and these buyers often exported these antlers immediately to be dried elsewhere and consumed in XXXXX[.]

9. Canadians have become aware of the opportunity to add value to their product and several drying plants have established. Their product is marketed to people of every type and background, here in Canada as well as in the traditional x Asian markets.

Interpretation Requested

Velvet antler is an ingredient for food or beverages for the purpose of section 1 of Part III of Schedule VI to the Excise Tax Act (The Act) and therefore the supply of velvet antler is zero-rated.

Interpretation Given

Based on the information provided, XXXXX is not an ingredient for food or beverages for the purpose of section 1 of Part III of Schedule VI to the Act and is therefore taxable at 7% under the GST and 15% when the HST applies.

Explanation

XXXXX is not an ingredient for food or beverages or a food by themselves. It is advertised and sold as either a health tonic or as a medicine but not as an ingredient for food or beverages.

In the package of information you send us to clarify the nature and usage of deer and elk velvet antler, we did not find anything that would support the position of considering deer/elk velvet antler as an ingredient for food or beverages. Most of the information referred to deer/elk velvet antler as a medicine which could be used as a treatment for various health problems. Some of the suppliers of deer/elk velvet antler qualified the product, supplied in a powdered form or in capsule form, as a dietary supplements.

At this point in time, we have not received sufficient evidence to support your claim that deer/elk velvet antler should be considered as an ingredient for food or beverages. To further advance your case, we advise you to provide a substantive argument which could include some recipes and advertising from suppliers who promote the deer/elk velvet antler as an ingredient for food or beverages.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. Goods that are delivered or made available in a participating province are subject to the HST.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8253.

Yours truly,

Bruno Charron, CA, M. Fisc.
A/Senior Rulings Officer
Goods Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

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