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: 173378
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to […][the Product]
Thank you for your fax of October 14, 2015, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of […]ml bottles of […] (the Product). We apologize for the delay in replying.
The HST applies in the participating provinces at the following rates: 13% in Ontario; 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
1. You have purchased a manufacturer’s case pack […] of the Product.
2. The Product was purchased from your current supplier […]. You were charged tax on the purchase of the Product. The supplier has offered to refund you the tax charged on the Product should the supply of the Product be zero-rated.
3. You resell the Product to retailers in pre-packed packages of [#]. However, retailers may re-sell the Product in single […]ml bottles.
4. You describe the Product as […] that is non-carbonated and non-fruit flavoured.
5. […].
6. Although the Product is sold in […]ml bottles, it is not marketed as a single serving.
7. It is your opinion that the Product sold in […]ml bottles should be considered as more than a single serving, or as an ingredient.
8. […][Information on usage of the product].
9. The Product is available in [#] varieties […].
10.[…].
11. The product label clearly indicates that the only content in the bottle is […]. Furthermore, the label suggests that consumers […], serve at room temperature, and store away from direct sunlight or heat.
12. You have confirmed that each of the bottles of the Product comes with a dropper which can be used to add drops of the Product to […][X].
13. Based on information provided […], it is our understanding that a […]ml bottle of the Product can retail for upwards of $[…].
14. It is your view that an average consumer would not purchase the Product simply to quench thirst. The Product is strictly purchased as an addition to [X]. A […]ml bottle of the Product would not be purchased at such a high price simply to consume as a single serving.
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.
RULING GIVEN
Based on the facts set out above, we rule that the supply of the Product is a zero-rated supply pursuant to section 1 of Part III of Schedule VI to the ETA. The Product is not captured by any of the exclusionary paragraphs of (a) to (r) in that section.
EXPLANATION
Generally, 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%.
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.
The terms “food” and “beverage” are not defined in the ETA. As stated in paragraph 2 of the GST/HST Memoranda Series 4.3, Basic Groceries, 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.
The term “ingredient” is also not defined in the ETA. Generally, our view is that an average consumer would consider a product to be an ingredient if the product added to flavour, texture or appearance of the final product; that is, if it was integral to the final product. Moreover, in order to be regarded as an ingredient to a food or beverage, the final product, in and of itself, must be a food or beverage.
The Product is sold in bottles of […]ml, which is less than the amount typically found in […] bottles consumed to quench thirst. […]. A dropper is also included with the Product, further evidencing the fact that the purpose of the Product is that it be added to [X].
[…]. Although the content of the Product is […], the fact that the advertising, marketing, and labelling of the Product clearly instruct the consumer to add it to [X] […], it is our opinion that this Product may be considered an ingredient, and therefore, a zero-rated supply under section 1 of Part III of Schedule VI.
Amounts paid as GST/HST in error
Where an amount has been paid as GST/HST in error, you may request a refund or credit of the amount from the supplier, pursuant to section 232. Paragraph 232(1)(b) provides that where a supplier has collected from the recipient an amount as or on account of tax in excess of the tax that was collectible by the supplier from the recipient, the supplier may, within two years after the day the amount was collected, refund or credit the excess amount to that recipient.
Where this is not possible, pursuant to section 261, you may request a rebate of the amount paid as tax in error directly from the Canada Revenue Agency by filing the form GST 189E, General Application for Rebate of Goods and Services Tax ,which is available under “Forms and Publications” on our web site. Among other criteria, to qualify for a rebate under this section, you must file the rebate claim within two years from the day the amount was initially paid to the supplier.
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 905-721-5218. 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, CPA, CGA
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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