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: 182230
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING AND INTERPRETATION
GST/HST Status of […][Energy and Fruit Bars]
Thank you for your letter of January 31, 2017, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][Energy Bar](Product A), […][Energy Bar](Product B) and […][Fruit Bar](Product C). We apologize for our delay in responding.
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.
We understand the following:
1. In your submission, you described Product A as energy bars. Although there are many variations of Product A, in general, you have indicated that the product contains ingredients such as […].
2. Product A energy bars, although fortified with vitamins and minerals, do not qualify as meal replacements or nutritional supplements.
3. The packaging for many of the flavours for Product A state that the product is “made with […]."
4. You have described Product B as being similar to Product A except that they are made specifically to meet the nutritional needs of […][certain individuals].
5. You have described Product C as fruit and nut bars. Again, although there are many variations of Product C, you have described the product as […].
6. Product C does not contain dairy and is made entirely from plant-based foods.
7. Product C is made from whole food and each flavour contains no more than [#] ingredients that are minimally processed to preserve their natural states.
8. All of the products under consideration are sold individually and also in packages of six or more.
9. It is your opinion that “while the bars are taxable when sold individually or in packages containing less than six items, these bars qualify for zero-rating when sold to consumers in packages containing quantities of six or more items”.
RULING REQUESTED
You would like to know how the GST/HST applies to supplies of Product A, Product B, and Product C.
RULING GIVEN
As samples of the products were not available for our review, we are unable to provide a ruling for Product A and Product B. We have provided an interpretation on the subject which may help you determine the tax status of the products.
With respect to Product C, based on the information available for our review, as a fruit bar, Product C would be excluded from zero-rating under paragraph 1(l) of Part III of Schedule VI to the ETA. Therefore, the supply of Product C would be fully taxable, regardless of the quantity sold.
EXPLANATION
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 excluded from zero-rating by way of paragraphs (a) to (r) of that section.
Product C is not a granola product and therefore, it is not excluded from zero-rating under paragraph 1(h). Nor is the product labelled as a meal replacement or a nutritional supplement under the Food and Drugs Act and Regulations as set forth in paragraph 160 of Memorandum 4.3 – Basic Groceries. The Product is not similar to products listed in paragraph 1(m). Included in this paragraph are foods commonly purchased or served as desserts or snacks that are baked, fried, fresh or frozen, or otherwise prepared for sale.
Product C has dates as the principal ingredient. Its physical composition is dried fruit and spices compressed into a rectangular bar. The label for Product C clearly identifies the product as a fruit and nut energy bar. The product label also describes the product as […][a product that contains fruits and nuts].
Product C contains a significant amount of fruit i.e., dates, which serves to bind all ingredients. Without the date content, Product C would crumble and would not hold its bar shape. The dates also provide sweetness to Product C and serves as a substitute for sugar. Based on the information available for our review, Product C would be considered a fruit bar given that fruit is a main or important ingredient in its composition and therefore, would be excluded from zero-rating under paragraph 1(l) of Part III of Schedule VI.
INTERPRETATION GIVEN
The term "energy bar" is applied to a variety of products such as:
- bars marketed along with chocolate bars;
- bars made almost wholly from fruit or from a mix of fruit and vegetables;
- nutritional supplement or meal replacement bars that meet the requirements set out in the Food and Drug Act (FDA); and
- bars which have nutritional attributes, such as protein or added vitamins or minerals, but which are not meal replacement or nutritional supplement bars since they do not meet FDA requirements.
Most protein, energy or similar bars have the following characteristics:
- they are fruit or candy flavoured (candy referring to chocolate, caramel, vanilla and other typical candy flavourings);
- they are often comprised of a mixture of fruits, nuts, seeds and cereals;
- they are either naturally or artificially sweetened;
- they are individually wrapped in single servings, although they may be sold individually or prepackaged in multiples of individually wrapped single servings; and
- they are usually consumed as snacks.
It is our view that most supplies of protein, energy or similar bars (chocolate coated or fruit-based) will be excluded under paragraph 1(e) or 1(l). Paragraphs 1(h) and 1(m) may also apply to exclude some of these bars.
Paragraph 1(e) excludes supplies of “candies, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners.”
This exclusion is intended to apply quite broadly as it applies not only to candy, but also to supplies of confectionery which may be classed as candy, and supplies of goods which are sold as candy. Furthermore, it applies whether the product at issue is artificially or naturally sweetened. Thus, the exclusion is intended to apply not only to supplies of candy, but supplies of anything that is likely to compete with candy in the marketplace.
As with other products, the manner in which these bars are marketed, including labelling, advertising, type of packaging and method of distribution should be considered. After a review of the marketing of protein, energy and similar bars, it is our view that bars of this nature are usually positioned in the marketplace as snacks, which are healthier alternatives to other snacks such as candy bars. Bar manufacturers emphasize the pleasing taste and flavours of the product often with an emphasis on chocolate or fruit. As such, we can conclude that consumers do consume the products for pleasure, although, as with other foods, today's more health conscious consumer may also select a particular bar because of the perception that there are specific health or performance benefits to be gained from consuming the product as well.
Paragraph (h) excludes granola products except for those which are sold primarily as breakfast cereal. Paragraph 64 of Memorandum 4.3 – Basic Groceries (Memorandum 4.3) identifies granola bars as generally having a mixture of cereals (e.g., rolled oats, rice, or other whole grains) and honey and/or syrup as the main ingredients, and may include nuts and dried fruits. The ingredients in granola bars are not processed to a great extent, thereby retaining the distinct character of each ingredient within the bar. Granola bars may also have a chocolate or sweetened coating.
Paragraph 65 of Memorandum 4.3 also addresses bars that contain a mixture of cereals and honey and/or syrup, where the ingredients have been processed to the point that they have lost their distinct character. Bars of this nature are not considered to be granola bars, but rather cereal bars or muffin bars. Cereal bars are treated as a product similar to sweetened baked goods and may be excluded under paragraph 1(m) of Part III of Schedule IV for GST/HST purposes. Paragraph 1(m) excludes from zero-rating such products when sold in quantities of less than six items, each of which is a single serving.
Paragraph 1(l) excludes supplies of "fruit bars, rolls or drops or similar fruit-based snack foods". "Fruit-based snack foods" is the common denominator in the exclusion; that is, the exclusion applies to fruit-based snacks in the form of bars, rolls or drops, and similar fruit-based snacks as well. In the context of this provision, our view is that "fruit-based" means the product contains fruit as the main ingredient and may also contain other ingredients.
It is also our view that products having fruit as an important ingredient, such that the product is represented to consumers as being fruit-based, will be within this exclusion. Such a product could include fruit in combination with any of the following: vegetables, grains or seeds. It may also mean that a product is not dominantly composed of fruits.
Since a wide variety of products may fall within this exclusion, we are of the view that textures will also vary. As a result, we do not consider texture to be an important criterion in determining if a product falls under this exclusion. As noted at the outset, the fact that a product is nutritious would not, in our view, preclude the product from being excluded under paragraph 1(l). As a result, we consider that protein, energy and similar bars which contain fruit as a main or important ingredient or which are marketed in a manner which suggests to the consumer that the bar is a fruit-based bar, would fall within the ambit of this exclusion.
Other Exclusions
It is also possible that supplies of some bars will be taxable at 5% (or the applicable HST rate) as sweetened baked goods when sold in quantities of less than six, pursuant to the exclusions in paragraph 1(m). This provision may only be applicable in instances where no other exclusionary provisions apply to the products.
Meal replacement bars, nutritional supplement bars
Despite our view that supplies of protein, energy or similar bars would usually be taxable at 5% (or the applicable HST rate), there will be some instances where the exclusions would not apply. Our position is that supplies of bars that meet the FDA requirements for meal replacements or nutritional supplements are zero-rated for purposes of the ETA. This would include protein bars that meet these requirements. Based on the available information, neither Product A nor Product would meet the FDA requirements to be considered meal replacement or nutritional supplement bars.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-721-5218. 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
Basic Groceries and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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