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: 171472
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to […] Beverages
Thank you for your fax of July 7, 2015, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to […] Beverages (the Product) manufactured by […] (the Company). We apologize for the delay in replying.
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 Government of New Brunswick has proposed to increase the rate of the HST in that province from 13% to 15%, effective July 1, 2016. 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
1. The Company is a non-resident corporation located in […][Country X], and is not registered for GST/HST purposes.
2. The Company imports the Product for distribution in Canada.
3. The Product comes in […][many] flavours: […]. A breakdown of the Product by flavour was provided as part of the request.
4. The ingredients for the individual flavours are as follows: […]
5. Some sales of the Product are made in [Country X] and imported directly by the distributors.
6. […], the percentage of water content for the various flavours is as follows: […]
Furthermore, based on the same breakdown, the percentage of natural fruit in each of the flavours ranges from 2% to 6%.
7. The Product is prepackaged [in] […] bottles, and is sold in Canada in cases of 12 single servings (296 ml or 10 oz.) to retailers.
RULING REQUESTED
You would like to know whether the supply of the Product is zero-rated under section 1 of Part III of Schedule VI. If so, you also wish to confirm whether the importation of the Product would consequently be considered a non-taxable importation for GST/HST purposes.
RULING GIVEN
Based on the facts set out above, we rule that the supply of the Product is excluded from zero-rating under section 1 of Part III of Schedule VI pursuant to paragraph 1(d) of Part III of Schedule VI. Consequently, we also rule that the importation of the Product would be considered a taxable importation for GST/HST purposes.
EXPLANATION
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 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.
Paragraph 1(d) excludes non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk based beverages, that contain less than 25% by volume of:
(i) a natural fruit juice or combination of natural fruit juices, or
(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state,
or goods that, when added to water, produce a beverage included in the paragraph.
Our review of the product information submitted leads us to conclude that the Product is excluded from zero-rating pursuant to paragraph 1(d).
In your analysis, you state that the natural juice, […], and […] constitute well over 25% percent of the total ingredients, that when added to water, produce a beverage that would be zero-rated.
However, paragraph 1(d) should not be read and interpreted to mean that the fruit content of the Product should be evaluated without consideration to the amount of water present in the Product. The phrase “goods that, when added to water, produce a beverage included in this paragraph” is referring to products in syrup, crystal, and powder form, which require the purchaser to add water to the product in order to have a consumable beverage.
The Product is already in a form ready for human consumption; water does not have to be added to the Product in order to consume it; the Product has water as the main ingredient. The Product must therefore be evaluated based on the form in which it is sold, which on its own is a consumable beverage. As such, as each of the flavours of the Product has less than 25% by volume of natural fruit juice, the exclusionary provision of paragraph 1(d) applies and the Product is not zero-rated under section 1 of Part III of Schedule VI.
As stated in the facts, the Product is imported. Under section 212, every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, shall pay to Her Majesty in right of Canada tax on the goods, unless the goods are non-taxable importations under Schedule VII.
Although section 6 of Schedule VII provides, in part, that goods included in Part III of Schedule VI are non-taxable importations, the Product is excluded from zero-rating under Part III of Schedule VI, and therefore does not qualify as a non-taxable importation. Where the Product is accounted for as a commercial good (defined in subsection 212.1(2) to mean goods imported for sale or for any commercial, industrial, occupational, institutional or other like use) under the Customs Act when it is imported, GST or the federal part of the HST would apply in respect of the importation at the rate of 5%.
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, CPA, CGA
Basic Groceries and Recapture of Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
Email this Content