Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
Attention: XXXXX
Case Number: 103081
July 10, 2008
Subject:
GST/HST RULING
Beverage mixes and a combination XXXXX product
Dear Ms. XXXXX:
Thank you for XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to beverage mixes and a combination XXXXX product (the Products).
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Statement of Facts
Our understanding of the facts is as follows:
1. XXXXX sells a product made by a company named XXXXX (Product 1). Product 1 consists of a teapot, XXXXX teacups XXXXX tea packaged together XXXXX and sold for a single consideration. You state that XXXXX is of the opinion that the teapot and cups are gift items and that Product 1 should, therefore, be zero-rated as the supply of tea.
2. XXXXX sells a product made by a company named XXXXX called XXXXX (Product 2). Per XXXXX Website, Product 2 was XXXXX Product 2 ingredients include: XXXXX.
3. XXXXX sells a product made by a company named XXXXX called XXXXX (Product 3). Per the XXXXX Website: XXXXX.
4. XXXXX sells a product made by a company named XXXXX (Product 4). Per the XXXXX Website: XXXXX.
5. Products 2, 3, and 4 are intended to be mixed with or used in the preparation of alcoholic beverages.
Ruling Requested
You would like to know how the GST/HST applies to supplies of the Products.
Ruling Given
Based on the facts set out above, we rule that supplies of the Product 1 are taxable at 5% GST or 13% HST pursuant to section 165 and supplies of Products 2, 3, and 4 are zero-rated pursuant to section 1 of Part III of Schedule VI.
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, 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 (13% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated, pursuant to subsection 165(3). The tax rate in respect of a zero-rated supply is 0%. A zero-rated supply is a supply that is included in Schedule VI.
Under Part III of Schedule VI, certain supplies of basic groceries are zero-rated. 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 included in paragraphs (a) to (r) of that section.
The terms "food" and "beverage" are not defined in the ETA. However, the Canada Revenue Agency (CRA) considers 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. Consumers usually consume food and beverages to allay hunger or quench thirst, or for enjoyment.
Generally, it is the view of the CRA that an average consumer would consider a product to be an ingredient if the product added to the 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.
Although tea is included as an element of Product 1, the supply of Product 1 is not the supply of tea. Product 1 is a unique product, which is not a good included under section 1 of Part III of Schedule VI. There are no other provisions that apply to zero-rate supplies of Product 1 and as a result, its supplies are taxable at 5% GST or 13% HST as applicable.
Supplies of Products 2, 3, and 4 are zero-rated as none of the exclusions included in paragraphs (a) to (r) of section 1 of Part III of Schedule VI apply.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9585. 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,
Ben Boboski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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