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: 144979
Business Number: [...]
June 11, 2013
Dear [Client]:
Subject: GST/HST APPLICATION RULING
Tax status of [...] Snack Crackers
Thank you for your letter of May 29, 2012, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the products described below. We apologize for the delay in responding.
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 (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
From your letter of May 29, 2012, the sample provided, and various Web sites noted in this letter, our understanding of the facts is as follows:
1. [...] snack crackers come in various flavours, two of which are:
* [...] Flavour (Product A), and
* [...] Flavour (Product B).
2. Your view is that supplies of Product A and Product B are zero-rated under Part III of Schedule VI to the ETA based on paragraph 94 of the GST/HST Memoranda Series, 4.3 Basic Groceries (MS 4.3) which states in part:
"The following are examples of zero-rated supplies. They are not considered to be sweetened goods for the purposes of paragraph 1(m):
...
* crackers (other than graham crackers), including:
...
- snacking crackers (including vegetable, bacon or cheese flavoured)"
3. You stated in your letter that Product A and Product B are dry package goods that will be marketed as an alternative to other cracker snacks and will be located in the cracker section of the retailer's store.
4. Neither Product A nor Product B is sold primarily as breakfast cereal.
5. Samples of Product A and Product B have been provided to us. Each sample includes the package which is a bag containing nutritional facts and ingredients.
6. Product A is sold in [...]g multi-serving bags. [...].
7. The contents of Product A are [...], with [...] packaged loosely in a bag.
8. The ingredients listed on the bag for Product A are [...].
9. The ingredients contained in Product A are found to be similar to those in another [...] product called [...].
10. The appearance of Product A is [...]. [...].
11. Words such as [...] appear on the bag of Product A.
12. [...].
13. Product B is sold in [...]g multi-serving bags. [...].
14. You stated that the contents of Product B are [...]
15. The contents of Product B are [...], packaged loosely in a bag.
16. The ingredients listed on the bag for Product B are [...].
17. Words such as [...] appear on the bag of Product B.
Ruling Requested
You would like to know if supplies of Product A and Product B are zero-rated under section 1 of Part III of Schedule VI to the ETA.
Ruling Given
Based on the facts set out above, we rule that supplies of Product A and Product B are subject to the GST/HST under subsections 165(1) and 165(2). Supplies of Product A and Product B are not zero-rated under section 1 of Part III of Schedule VI to the ETA.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
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, unless the supply is zero-rated (listed in Schedule VI to the ETA and subject to the GST/HST at the rate of 0%) or exempt (listed in Schedule V to the ETA and 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.
Product A
Paragraph 1(f) of Part III of Schedule VI to the ETA excludes from zero-rating the following:
"chips, crisps, puffs, curls or sticks (such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls), other similar snack foods or popcorn and brittle pretzels, but not including any product that is sold primarily as a breakfast cereal".
On a comparison of the significant properties (ingredients, flavour, texture, and labelling) of Product A to other traditional [...] products available on the market, we have found no significant differences. The ingredients contained in Product A are similar to those in other [...] products. The taste of Product A is no different from the taste of a traditional [...]. Also, Product A is somewhat crunchy and [...] in texture like a traditional [...]. Thus, we consider Product A to be a [...] rather than a cracker. Though product placement is a relevant consideration, it alone is not considered a determinative factor. As Product A is a [...] which falls under the exclusion as described in paragraph 1(f) of Part III of Schedule VI to the ETA, supplies of Product A are subject to the GST/HST at the applicable rates according to subsections 165(1) and 165(2) and the place of supply rules.
Product B
Product B is one unique good containing two elements, sold in a bag for a single price. The two elements are mixed together before the bag is sealed. Though the two elements remain separate and distinct from each other and are not bound into one whole, they are integral to the final product and neither of them is incidental to the other. Though individual packages of each element are available in the market, the elements are now combined together to be sold as one new product.
When a person combines two or more goods together, it must be determined whether the person is making a single supply or multiple supplies. Policy Statement P-077R2: Single and Multiple Supplies sets out criteria to determine if a transaction consists of a single supply or multiple supplies.
Using the criteria in the above policy statement, we have concluded that the supply of Product B is a single supply.
Paragraph 1(i) of Part III of Schedule VI to the ETA excludes from zero-rating the following:
"snack mixtures that contain cereal, nuts, seeds, dried fruit or any other edible product, but not including any mixture that is sold primarily as a breakfast cereal".
Paragraph 67 of the MS 4.3 provides that snack mixtures usually have the following characteristics:
• Consumers commonly view them as snacks.
• Their ingredients are ready to eat; no further processing is required.
• The ingredients have been combined before the product is sold.
• The main ingredients remain separate and distinct from each other and are not bound into one whole.
• The main ingredients are often coated with a savoury seasoning such as salt or barbecue flavouring.
• They are eaten by the handful or as individual bite-sized pieces without utensils.
• They are usually sold in pouch packs or bags, from bulk bins or in clear plastic containers.
Product B is sold in [...] gram bags containing an equal mixture by weight of two ingredients. One ingredient being [...] which is an item identified in paragraph 1(f) of Part III of Schedule VI to the ETA and the other ingredient being small crackers which is not specifically excluded from paragraphs (a) to (r) of section 1 of Part III of Schedule VI to the ETA. Though the ingredients are mixed together, they remain separate and distinct from each other. Both ingredients are coated with a savoury flavouring. Product B can be eaten by the handful or as individual bite-sized pieces without utensils. Product B is ready to eat generally as a snack and no further processing is required. As Product B has all the characteristics as described in paragraph 67 of MS 4.3, we consider Product B to be a snack mixture which falls under the exclusion of paragraph 1(i) of Part III of Schedule VI to the ETA. As Product B is a snack mixture, supplies of Product B would be subject to the GST/HST at the applicable rates according to subsections 165(1) and 165(2) and the place of supply rules.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-721-5217. 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,
Denise Chan
Basic Groceries and Point-of-Sale Rebates Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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