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
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Case Number: 107846
Attention: XXXXX
November 28, 2008
Dear Ms. XXXXX:
Subject:
GST/HST RULING
Review of rulings on the application of GST/HST to the supply of XXXXX
Thank you for your letter of XXXXX, requesting a review of the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of XXXXX (Product A) and XXXXX (Product B).
XXXXX
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
Our understanding of the facts is as follows:
1. Product A is sold in multiples of XXXXX - XXXXX mL containers pre-packaged by the producer.
2. The Product A label states XXXXX
3. The ingredients of Product A are: XXXXX.
4. XXXXX (the Producer) Website states: XXXXX
5. The Producer has stated that Product A is a formulated liquid diet as defined by the Food and Drug Act Regulations, and that it meets the compositional requirements under that Act.
6. XXXXX
7. Product B is sold in multiples of XXXXX - XXXXX mL containers pre-packaged by the producer.
8. The Product B label states: XXXXX
9. The ingredients of Product B are: XXXXX.
10. XXXXX (the Producer) Website states: XXXXX
11. The Producer has stated that Product B is a formulated liquid diet as defined by the Food and Drug Act Regulations, and that it meets the compositional requirements under that Act.
12. XXXXX
Ruling Requested
You would like to know how the GST/HST applies to supplies of Product A and Product B.
Ruling Given
Based on the facts set out above, we rule that supplies of Product A and Product B 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. The tax rate in respect of a zero-rated supply is 0%. Taxable supplies that are zero-rated for GST/HST purposes are described 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 thirst or for enjoyment rather than for therapeutic or preventative effects.
The CRA's approach is based on the views of an "average consumer". Products that meet the special dietary needs of certain segments of the population, such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed by the average consumer as food or beverages. These types of products are commonly referred to as dietary supplements.
However, the CRA's approach would not preclude a product from zero-rating that is specially processed or formulated to meet the dietary requirements of a person in whom a physical or physiological condition exists as a result of a disease, disorder or injury or whom a particular effect is to be obtained by a controlled intake of food. This includes products such as formulated liquid diets, provided these products are intended to allay hunger or thirst or for enjoyment through the digestive system rather than for therapeutic effects. The Regulations under The Food and Drug Act provide that "formulated liquid diet" means a food that is sold for consumption in liquid form, and is sold or represented as a nutritionally complete diet for oral or tube feeding of a person. Further, formulated liquid diets have specific caloric, fat content and vitamin and mineral requirements. Although these products are different from what an ordinary consumer would view as food, their main purpose is to provide nutrition and nourishment for people with a medical condition.
Products that qualify as formulated liquid diets under the Food and Drug Act and Regulations are considered to be basic groceries for GST/HST purposes. All supplies of formulated liquid diets are zero-rated (except when sold from a vending machine). We are of the view that Product A and Product B are formulated liquid diet products and as such their supplies are zero-rated.
In determining the tax status of a particular product, the composition of each particular product in a product line must be considered to determine if each particular product is, for example, a formulated liquid diet, meal replacement, nutritional supplement, dietary supplement, or food or beverage.
If a product is represented as being a formulated liquid diet as evidenced by the label, the CRA will accept this information as fact in determining its tax status. If, however, after a ruling has been issued, it is determined that a product is in fact not a formulated liquid diet, the ruling will not be valid in accordance with GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
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
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UNCLASSIFIED
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