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: 188253
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to […][a Powered Mix]
Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of […][a Powered Mix]([…][Product X]). We apologize for the delay in replying.
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 facts to be as follows:
1. [Product X] is imported and sold by […](the Company). The Company is registered for GST/HST purposes.
2. [Product X] is described on the website […].
3. The package describes [Product X] to be […][high in protein and states its benefits].
[…].
4. Instructions for use were given: Pour [...] cups water, add [...] cup [Product X], milk, sweetener and ice as desired. Blend and serve immediately. [Product X] may thicken, if left standing, add extra water and blend before serving. As desired for variety and added flavour, include ripe bananas or malted drink.
5. […]. [Describes the beneficial effects of Product X].
6. Ingredients of [Product X] are listed as: […].
7. The health benefits of each ingredient are listed on the back of the package: […]
RULING REQUESTED
You would like to know if supplies of [Product X] are zero-rated as basic groceries under section 1 of Part III of Schedule VI.
RULING GIVEN
Based on the facts set out above, we rule that [Product X] is not zero-rated under section 1 of Part III of Schedule VI.
EXPLANATION
Generally, in accordance with section 165, 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 (or at the rate of 13% in Ontario; 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island) unless the supply is zero-rated. The tax rate in respect of a zero-rated supply is 0%. A zero-rated supply is a supply that is included in Schedule VI.
Section 1 of Part III of Schedule VI zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.
The terms “food” and “beverage” are not defined in the ETA. Our approach is that these terms are to be read according to their ordinary meaning. As stated in GST/HST Memorandum 4.3, Basic Groceries (MS 4.3), we consider a product to be a food or beverage if an average consumer would recognize and purchase the product as such in the ordinary course of buying basic groceries. (i.e., food, beverages and ingredients marketed for human consumption). This approach is based on the view that food and beverages are usually consumed by an average person to sustain or maintain life, to allay hunger or thirst, or for enjoyment rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial benefits related to performance or physique. Individual preferences for, or dislikes of, certain products would not alter the general perception that a product is, or is not, a food or beverage. Similarly, products that meet the special dietary needs of certain segments of the population, such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed as basic groceries.
The term “ingredient” is also not defined in the ETA. According to paragraph 4 of MS 4.3, our view is that an average consumer would consider a product to be an ingredient if it added to the flavour, texture or appearance of the final product; that is, if it was integral to the final product. Moreover, to be considered an ingredient, the final product must, in and of itself, be a food or beverage. Thus, a product that is marketed for its beneficial effects and that is added to a food or beverage simply as a way to consume it would not be considered as an ingredient.
Dietary supplements
GST/HST Info Sheet GI-001 Products Commonly Described as Dietary Supplements addresses the question of whether products commonly described as “dietary supplements” are zero-rated as foods, beverages or ingredients. The policy states that the term "basic groceries" refers to food, beverages and ingredients that are usually consumed by an average person because they are hungry or thirsty, or simply for enjoyment.
The points contained in the GI-001 with respect to food and beverages are:
- The label or marketing material refers to the product as a "dietary supplement" or "supplement".
- The label or marketing material claims that the product has a therapeutic or preventive effect, enhances mental or physical performance, or enhances physique.
- The label or marketing material emphasizes a particular nutrient that is not commonly regarded as an ingredient to basic groceries; for example, whey protein isolate or chlorophyll. The product may also emphasize the purity or source of the nutrient.
- The label or marketing material indicates the dosage size and how often the product should be taken. There may also be warnings advising certain people such as children or pregnant women not to take the product, or that the product is to be taken only as directed by a physician.
- The product has a Drug Identification Number (DIN), a Drug Identification Number - Homeopathic Medicine (DIN-HM), or a Natural Products Number (NPN).
- The product lists the active or medicinal ingredients.
- The product is compared to other products that are not considered to be a food, beverage or ingredient. For example, a product in powder form may be compared to a product in pill form.
- The label or marketing material focuses on the benefits to be derived from taking the product.
- The product is in a form not commonly associated with food, beverages or ingredients, for example, pills, capsules, tablets, gels, liquids in eye-dropper bottles, fibres, wafers, powders and concentrates.
- In sales catalogues or stores, the product is not placed with products that are commonly recognized as foods, beverages or ingredients. The product may be placed with non-prescription drugs.
Products referred to as dietary supplements are not considered to be basic groceries as they are not products that an average consumer would ordinarily purchase in the course of buying food or beverages.
The term “dietary supplement” is not defined in the ETA. As noted in paragraph 148 of MS 4.3, we consider products that are consumed for their therapeutic or preventative effects (e.g., to correct actual or perceived health problems), or to achieve specific beneficial effects related to performance or physique, to be dietary supplements. We also consider products that are labelled or marketed as products to be consumed primarily to facilitate the intake of ingredients that place an emphasis on the benefits of the product to be dietary supplements.
[Product X] is high in protein and zinc and is consumed for its therapeutic or beneficial effects. […]. An average consumer would not recognize and purchase [Product X] as a basic grocery (i.e., food, beverages and ingredients marketed for human consumption). [Product X] is not a food, beverage or an ingredient and is therefore not zero-rated under section 1 of Part III of Schedule VI.
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 and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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