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: 173964
Business Number: […]
Dear [Clients] :
Subject: GST/HST RULING
Tax status of kombucha
Thank you for your facsimilies concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to kombucha products sold by […](the Company).
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
We understand the following:
1. Based on the Company’s website […], the Company supplies many flavours of […][Product A] kombucha and […][Product B] kombucha […].
2. The Company markets its [Product B] kombucha […] as […].
3. The kombucha is supplied in […]ml bottles and […].
4. The Company’s brand of kombucha is created by combining raw kombucha (filtered water, teas, evaporated cane juice, and a kombucha culture (Symbiotic Culture of Bacteria and Yeast also known as a SCOBY,[…], and other ingredients.
5. The raw kombucha results from a fermentation process and creates the by-products of carbon dioxide and alcohol (generally less than 0.5% alcohol by volume). These by-products are retained in the final beverage product.
6. The kombucha products contain zero forced carbonation.
RULING REQUESTED
You would like to know how the GST/HST applies to the Company’s kombucha products.
RULING GIVEN
Based on the facts set out above, we rule that all supplies of the kombucha products are excluded from zero-rating under paragraph 1(c) of Part III of Schedule VI, and are therefore subject to GST/HST at the applicable rate determined by 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. The Product, as described, is a fizzy 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.
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 ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) 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 905-721-5222. 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,
Elizabeth Onsiong
Basic Groceries & Recapture Input Tax Credits Unit
General Operation and Border Issues Division
Excise and GST/HST Rulings Directorate
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