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: 152577
Business Number: [...]
November 27, 2013
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to [...] [the Product]
Thank you for your letter of [mm/dd/yyyy], 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Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.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 [...], the product packaging sample provided, and various websites [...], our understanding of the facts is as follows:
1. [...] [The Company] is distributing [...] (the Product) in [...] different sizes: convenient-size packages of [...] grams and family-size packages of [...] grams.
2. You stated in your letter that:
• [The Company] has been charging GST/HST on the Product assuming it would fall into the snack category;
• [The Company] is distributing the Product in cases of [...] packages and retailers are selling them as individual packages; and
• [...] is questioning [the Company]'s decision [to charge the] GST/HST on supplies of the Product.
3. [...] [Information] supplied with your letter shows the following:
• The Product is marketed as [...] [a] roasted [...] snack that is [...] [vegan, gluten-free and made using olive oil].
• The Product is available in [#] flavours: [...].
• The Product is a product of [...] [Country A] and has a [...] shelf life.
• Retailers can display the Product on a [...] [describes promotional store display].
4. Samples of packaging for the Product [...] have been provided. They are for the [...] flavour packaged into [...] foil-type bags. The convenient-size package is [...] [describes size and weight]. The family-size package is [...] [describes size and weight]. [...].
5. Each sample packaging contains nutritional facts and ingredients.
6. The labelling and packaging for the convenient-size package show that:
• [the package includes] words [...] [about product flavor, ingredients, description and convenience];
• [the package includes] the [...] [product name and promotional text];
• the Product [...] [contains no sugar, cholesterol, trans fat or MSG];
• the package contains [...]mg of sodium; and
• the listed ingredients are [...].
7. Claims from the manufacturer appear on the [...] convenient-size package as follows: [...]
8. The labelling and packaging for the family-size package show that:
• The package contains [...] enough for [...] servings;
• [the package includes] words [...] [about product flavor, ingredients, description and convenience];
• the Product [...] [contains no sugar, cholesterol, trans fat or MSG];
• the package contains [...]mg sodium; and
• the listed ingredients are [...].
9. Claims from the manufacturer appear on the [...] family-size package as below: [...]
10. On the [...] family-size package, the manufacturer stated the following: [...]
11. There is no evidence that the Product is being sold as a breakfast cereal.
12. The manufacturer describes the Product on its website [...] as healthy snacks [...]. The following statements are found in the manufacturer's website: [...] [Product benefits, preparation ideas and other information found on packaging]
13. On the manufacturer's website [...], [the product] is advertised as a snack [...]. The website states: [...] [more about ingredients and promotional text]
Ruling Requested
You would like to know if the Product in the convenient-size packages ([...] grams) and family-size packages ([...] grams) 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 the Product in the convenient-size packages ([...] grams) and family-size packages ([...] grams) are subject to the GST/HST under subsections 165(1) and 165(2). Supplies of the Product 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.
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.
Paragraph 57 of the GST/HST Memoranda Series 4.3, Basic Groceries (MS 4.3) states
"Products that are enumerated in paragraph 1(f) generally have potatoes, corn, or corn meal as a main ingredient. However, inclusion of ingredients not listed above would not preclude a particular product from falling within paragraph 1(f)."
Our position is that if a product is represented (i.e., labelled and marketed) solely for use as an ingredient, it may be zero-rated. However, if a product is represented as both an ingredient and a snack food, that product will be excluded from zero-rating if it falls within any one of the exceptions listed in paragraphs 1(a) to (r) of Part III of Schedule VI to the ETA.
This would mean that if the Product is represented as a snack which is excluded from zero-rating under paragraph 1(f) of Part III of Schedule VI to the ETA, the Product would not be zero-rated even though it can be used as an ingredient.
The following factors as listed in paragraph 56 of MS 4.3 are used when determining whether a food product is similar to the snacks as identified in paragraph 1(f) of Part III of Schedule VI to the ETA.
Properties
• Ingredients: potatoes, corn or corn meal.
• Flavours: In addition to salty, the product is available in flavours such as salt and vinegar, barbecue, all-dressed, cheese, nacho, ketchup, pizza, sour cream and onion, etc.
• Texture: crispy, crunchy, brittle or fluffy.
• Cooking process: deep fried or baked.
• Size and shape: small, thin, slice, (chip); long and slender cylindrical form (stick); fluffy mass (puff); or spiral or winding form (curl).
Labelling
The word "chip", "crisp", "puff", "curl" or "stick" appears in the name of the product or elsewhere on the label (e.g., "healthier than a chip", "tastes like a chip" or "part chip"). The label includes words found on packages of chips, crisps, puffs, curls, or sticks (e.g., "snack", "party snack" or "crunch").
Packaging
The product is packaged loosely in a bag.
Marketing
The advertising, whether through print or electronic media, includes words such as "chips", "crisps", "puffs", "curls" or "sticks" (e.g., "chip-loving eaters" or "healthier than a chip"). The advertising, whether through print or electronic media, includes words found on packages of chips, crisps, puffs, curls or sticks (e.g., "snack", "snack food", "party snack", "crunch" or "crispy").
In determining whether the Product is similar to the snacks as identified in paragraph 1(f) of Part III of Schedule VI to the ETA, we have looked at these factors and our findings are listed below:
Properties
• Ingredients: The Product does not have potatoes, corn or corn meal as its main ingredients. The main ingredients of the Product are [...].
• Flavours: The Product has a salty and savoury taste. It is available in [...] flavours: [...].
• Texture: The Product is thin, light, dry, and crunchy. It has a chip-like texture.
• Cooking process: The Product is roasted [...].
• Size and shape: The Product [...] [comes in more than one shape]. Either package can be eaten directly without further processing by just opening the bag.
Labelling
• The convenient-size package is labelled as a [...] food product. The family-size package is labelled as a snack product.
Packaging
• The Product is packed in foil-type bags similar to a bag of chips.
Marketing
• The Product is not marketed as "chip", "crisp", "puff", "curl", "stick", "popcorn" or "pretzel". However, it is marketed as a healthy snack [...].
Although the Product does not have potatoes, corn or corn meal as its main ingredients and can be used in food preparation, the properties, labelling, packaging, and marketing elements considered together provide an overall indication that the Product is a snack food similar to those listed in paragraph 1(f) of Part III of Schedule VI to the ETA. The Product:
• has a salty and savoury taste;
• is crispy or crunchy in texture;
• is packaged in a fashion similar to snack foods;
• is commonly enjoyed and regarded as a snack food;
• can be consumed directly by just opening the bag;
• is marketed as a healthy snack food;
• is likely to be found in the snack aisle of retail stores;
• is not promoted solely for use as ingredients for food preparation; and
• is marketed as a snack food to compete with chips.
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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