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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 173026
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of the GST/HST to the supply of […][X Brand] kombucha beverage and […]
Thank you for your letter concerning the application of GST/HST to the supply of […][X Brand] Kombucha (Product A) and […] (Product B).
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
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 Company is a GST/HST registrant.
2. The Company is a brewery that manufactures and distributes Product A. In addition, the Company is a wholesaler of Product B.
3. The Company brews and distributes various flavours of Product A.
4. Product A is a brand of kombucha, which is a fermented tea beverage produced by a Symbiotic Culture of Bacteria and Yeast (SCOBY) added to various tea blends.
5. By-products of the fermentation process are carbon dioxide and alcohol (less than 0.5% alcohol by volume).
6. Product A is being sold in […]L […] to retailers to be sold at their premises.
7. The Company also supplies empty Product B to be used as a […] container.
8. Although Product B is […], it is not supplied as a returnable container.
9. Product B is used to cut down on packaging waste and to offer premium quality Product A at an affordable price.
RULING REQUESTED
You would like to know how the GST/HST applies to supplies of Product A and Product B.
RULING GIVEN
Supplies of Product A are excluded from zero-rating pursuant to paragraph 1(c) of section 1 of Part III of Schedule VI. Supplies of Product B are taxable based on the general taxing provision in section 165. Therefore, both Product A and Product B are subject to GST/HST at the applicable rate based on the place of supply.
EXPLANATION
Generally, in accordance with subsections 165(1) and 165(2), every recipient of a taxable supply made in Canada is required to pay the full rate of GST/HST on the value of the consideration for the supply, unless the supply is zero-rated (listed in Schedule VI to the ETA and subject to the GST/HST at the rate of 0%).
Section 1 of Part III of Schedule VI to the ETA zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.
Paragraph 1(c) of Part III of Schedule VI excludes carbonated beverages from zero-rating. Excluded beverages can be carbonated either naturally or artificially. The words carbonated, sparkling, soda water, and effervescent are indicative of carbonation.
Product A, as described, is a beverage that results from the fermentation of tea. The fermentation process creates carbon dioxide that is absorbed into the fermented tea creating a naturally carbonated beverage. Paragraph 1(c) of Part III of Schedule VI excludes from zero-rating the supply of carbonated beverages. Supplies of Product B are taxable based on the general taxing provision in section 165.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (905)721-5184. 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,
Siraj Patel, CPA, CGA
Basic Groceries and Recaptured Input Tax Credits Unit
General Operation and Boarder Issues Division
Excise and GST/HST Rulings Directorate
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