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: 145577
Business Number: [...]
June 13, 2013
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to [...] [ACo] Snack Crackers
Thank you for your letter of June 18, 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Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.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 June 18, 2012, the sample provided, and various Web sites noted in this letter, our understanding of the facts is as follows:
1. [ACo] snack crackers come in various flavours, three of which are:
• [...] (Product A),
• [...] (Product B), and
• [...] (Product C).
2. You stated in your letter that Product A, Product B, and Product C are shelved in the cracker section of the stores.
3. Product A, Product B, and Product C are not sold primarily as breakfast cereal.
4. Copies of the product labels for Product A, Product B, and Product C have been provided.
5. Also, samples of Product A, Product B, and Product C have been provided. Each sample includes the package which is a [...] containing nutritional facts and ingredients.
6. Product A is sold in a [...].
7. The contents of Product A are [...], with [...] flavour packaged loosely [...].
8. The ingredients listed [...] for Product A are [...].
9. The appearance of Product A is [...]. The inside is solid.
10. Words such as [...] appear [...] [on the packaging] of Product A.
11. Product B is sold in a [...].
12. The contents of Product B are [...], with [...] flavour packaged loosely [...].
13. The ingredients listed on [...][the packaging] for Product B are [...].
14. The appearance of Product B is [...], hollow on the inside, crunchy, dry, and fluffy in texture. Product B has a savoury taste.
15. Words such as [...] appear on [...][the packaging] of Product B.
16. Product C is sold in a [...].
17. The contents of Product C are [...], with [...] flavour packaged loosely [...].
18. The ingredients listed on [...][the packaging] for Product C are [...].
19. The appearance of Product C is [...], hollow on the inside, crunchy, dry, and fluffy in texture. Product C has a savoury taste.
20. Words such as [...] appear on [...][the packaging] of Product C.
Ruling Requested
You would like to know if Product A, Product B, and Product C would be excluded from zerorating as other similar snack foods described under paragraph 1(f) 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 are subject to the GST/HST under subsections 165(1) and 165(2). Supplies of Product A are excluded from zero-rating under paragraph 1(f) of Part III of Schedule VI to the ETA; and
• supplies of Product B and Product C are 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 of the ETA, 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 C
In determining whether Product B and Product C are foods similar to chips, crisps, puffs, curls, or sticks as listed in paragraph 1(f) of Part III of Schedule VI to the ETA, we have looked at the following factors:
Properties
- Ingredients: Product B and Product C do not have potatoes, corn or corn meal as its main ingredients. The main ingredients of Product B and Product C are flour and vegetable oil.
- Flavours: In addition to salt, Product B is coated with a [...] seasoning and Product C is coated with a seasoning that tastes like [...]. These savoury seasonings are commonly found in snack foods.
- Texture: The texture of Product B and Product C is dry and fluffy.
- Cooking process: Both Product B and Product C are baked goods.
- Size and shape: Both Product B and Product C are small in size and can be eaten by the handful. Also, they are in the form of [...] rather than in a form of a slice, stick or cylinder.
Labelling
- Both Product B and Product C are labelled as snack crackers. Neither Product B nor Product C has the word "chip", "crisp", "puff", "curl", "stick", "popcorn" or "pretzel" appear in the name of the packaging.
- The words appearing on the label of Product B and Product C are "snack crackers" rather than "snack" or "party snack" that are commonly found on packages of chips, crisps, puffs, curls, or sticks.
Packaging
- The contents of Product B and Product C are packaged loosely [...].
Marketing
- Neither Product B nor Product C is marketed as "chip", "crisp", "puff", "curl", "stick", "popcorn" or "pretzel".
- None of the advertising of Product B and Product C includes words found on packages of "chip", "crisp", "puff", "curl", "stick", "popcorn" or "pretzel".
- Both Product B and Product C are promoted as snack crackers and generally found in the cracker aisle of the grocery store.
Though the contents of Product B are packaged loosely [...] and Product B comes in a savoury flavour which is commonly found in snack foods, Product B is significantly different in the main ingredients, shapes, labelling and marketing from the types of snack foods listed in paragraph 1(f) of Part III of Schedule VI to the ETA. The same was observed for Product C. Thus, we do not consider Product B and Product C to be snack foods which are excluded from zero-rating under paragraph 1(f) of Part III of Schedule VI to the ETA.
Paragraph 94 of the GST/HST Memoranda Series, 4.3 Basic Groceries states in part:
"The following are examples of zero-rated supplies...:
...
* crackers (other than graham crackers), including:
...
- snacking crackers (including vegetable, bacon or cheese flavoured)..."
Product B and Product C are found to be similar to snacking crackers which are not excluded by any of paragraphs (a) to (r) of section 1 of Part III of Schedule VI to the ETA. Thus, supplies of Product B and Product C are zero-rated under section 1 of Part III of Schedule VI to the ETA.
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 & Point-of-Sale Rebates Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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