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: 153092
Business Number: [...]
August 30, 2013
Dear [Client]:
Subject: GST/HST RULING
[Prepackaged cookies]
Thank you for your letter of April 1, 2013, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to prepackaged cookies.
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Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.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
We understand that:
1) [...] (the company) is a GST/HST registrant.
2) The company produces and sells cookies through wholesale and retail transactions.
3) The company targets elementary and secondary schools, hotels, caterers, and convention centres through its wholesale operations and it offers retail sales through its factory outlet.
4) It is estimated that [...]% of the company's sales are to schools in relation to school lunch programs.
5) The cookies are made available in quantities of [#] and [#] units per box.
6) The packaging of the cookies is the same, regardless of whether a sale is a wholesale or retail transaction.
7) The cookies are packaged in standard corrugated cardboard boxes.
8) The box labelling identifies the producer and location of production, as well as the type and quantity of the cookies contained within the box.
9) The box labelling also identifies/lists the ingredients of the cookies and the nutrition facts per individual cookie.
10) The cookies are individually wrapped in [...].
11) The individual wrappings do not contain a listing of ingredients or a statement of nutrition facts.
Ruling Requested
You would like to know if the company's supply of a box of [#] or [#] individually wrapped cookies is subject to the GST/HST.
Ruling Given
Based on the facts set out above, we rule that the company's supplies of the individually wrapped cookies, boxed and sold in quantities of [#] and [#], are subject to the GST at 5% (when the supplies are made in a non-participating province) or HST at the applicable rate (when the supplies are made in a participating province) pursuant to section 165, except where the supply of the box of cookies is an exempt supply.
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, most supplies of property or services that are made in [...][province X] are subject to the [...][GST/HST], unless they are specifically zero-rated (taxable at the rate of 0%) or exempt. Zero-rated supplies are listed in Schedule VI and exempt supplies are listed in Schedule V to the ETA.
Specifically, Part III of Schedule VI provides that supplies of basic groceries are zero-rated for GST/HST purposes, subject to specific exclusions. Cookies that are prepackaged for sale to consumers in quantities of less than six are excluded from zero-rating by means of paragraph (m) of section 1 of Part III of Schedule VI. The company's cookies which are individually wrapped are prepackaged for sale to consumers in quantities of less than six as the individually wrapped cookies are designed and marketed almost exclusively to parties (i.e., schools) that resell the cookies to consumers in individual units. As such, the company's supply of a box of [#] or [#] individually wrapped cookies is excluded from the zero-rating provision and therefore subject to the [GST/HST] when the supply of the box of cookies is made in [province X], whether the supply is made through the company's wholesale operations or its factory outlet, unless the supply is an exempt supply.
It is important to note that the company's supplies of the individually wrapped cookies in boxes of [#] or [#] that are made to a school authority are exempt supplies (not subject to GST/HST) when the company has entered into a contract with the school authority to provide food or beverages in an elementary or secondary school cafeteria primarily to students of the school, except to the extent that the food, beverages and services are provided for a reception, conference or other special occasion or event. Where the school does not have a cafeteria, a classroom or gymnasium may be considered as such. This relief is provided through section 14 of Part III of Schedule V. Subsection 123(1) defines the term "school authority" to mean an organization that operates an elementary or secondary school in which it provides instruction that meets the standards of educational instruction established by the government of the province in which the school is operated.
This exemption is not available to staff or associates of the school authority. Teachers, parent councils, and others, making purchases in their own names are required to pay the GST/HST. It should also be noted that the onus would be on the company to know where and to whom a supply is being made. The company must also know the purpose for which the supply is being made since the exemption does not apply, as noted above, to the acquisition of food or beverages for special functions where the primary purpose is other than the provision of food and beverages to students. Normally, this information would be disclosed at the time the contract is entered into.
[...], the making of exempt supplies will have an impact on the input tax credits, if any, that may be claimed by the company.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-721-5222. 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,
David Nichol
Basic Groceries and Point-of-Sale Rebates Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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