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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 163518
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to […][a Bread Product]
Thank you for your fax of July 15, 2014, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of […] (the Product).
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. 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. You are a sole proprietorship (operating as […]) registered for GST/HST purposes.
2. You describe the Product as organic bread […]
3. The Product is further described as a dinner-sized bread weighing […] grams and available in salty and sweet varieties.
4. The dough used to make the Product is made up of organic flour, water, organic canola oil, organic milk, salt, organic sugar and yeast.
5. In baking the Product, the dough is […]
6. There are 3 varieties of the Product:
1. […] – […][describes ingredients of variety 1];
2. […] – […][describes ingredients of variety 2];
3. […] – […][describes ingredients of variety 3].
7. The shelf-life of the Product is only one day as no preservatives are added to the dough.
8. The Product is sold fresh and warm. Once the Product cools down, you discount the price as it is meant to be eaten warm.
9. […].
RULING REQUESTED
You would like to confirm the tax status of the Product.
RULING GIVEN
Based on the facts set out above, we rule that supplies of the Product are subject to the GST/HST under subsection 165(1) and 165(2) of the ETA. They are not zero-rated under section 1 of Part III of Schedule VI to the ETA.
EXPLANATION
Generally, in accordance with section 165, every recipient of a taxable supply made in Canada is required to pay GST/HST on the value of the consideration for the supply. Zero-rated supplies (listed in Schedule VI to the ETA) are subject to the GST/HST at the rate of 0%. Exempt supplies (listed in Schedule V to the ETA) are not subject to the GST/HST.
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(o) excludes from zero-rating “food or beverages heated for consumption”. Food or beverages heated for consumption include food supplied by establishments that have been heated or kept hot so that it can be consumed hot.
The tax status of any cooked foods depends on the way they are sold. For example:
• if they are sold from a heated cabinet, they are not zero-rated;
• if the establishment has a separate take-out counter, any hot foods sold from this counter are not zero-rated; or
• if the food and beverages are purchased and heated at the point of purchase, they are not zero-rated.
Food heated for consumption can be differentiated from food that is hot as a result of the cooking process. Food that is hot as a result of the cooking process, while still hot, may be zero-rated if it is hot only as a result of that cooking process and has been randomly chosen by the purchaser.
In determining whether a food item has been heated for consumption or is hot as a result of the cooking process, the specific facts must be considered. It is our opinion that the supplies of the Product are considered goods heated for consumption. Measures have been implemented to ensure that the Product is generally sold hot. One such measure is having a baking oven […][on-site] to ensure fresh batches of the Product can be baked in front of the customer.
Furthermore, it is our view that the Product is cooked on a “just-in-time” basis. A day’s supply of the Product is not baked at the beginning of the day so that it would only be by chance that a customer would purchase the Product while hot. A fresh supply of the Product is made in front of the customer anytime an order is received. We think it is reasonable to say that the average customer purchasing from you would prefer to eat the Product while hot. This is evidenced by the fact that cold or even lukewarm supplies of the Product are sold at a discount.
As supplies of the Product are normally made while the Product is fresh and hot, the Product is excluded from zero-rating under paragraph 1(o) of Part III of Schedule VI to the ETA. The Product is taxable […].
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 given in this letter provided that: none of the issues discussed in the ruling 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 905-721-5220. 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, CGA
GST/HST Rulings Officer
Basic Groceries and Recapture of Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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