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
Case Number: 111798
March 30, 2010
Dear XXXXX:
Subject:
GST/HST RULING
XXXXX
Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the product known as XXXXX (the Product). We apologize for the delay in this response.
HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.
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. You are requesting a ruling on the Product on behalf of your client, XXXXX.
2. The Product is distributed by XXXXX, a company located in XXXXX.
3. The submission consists of labels for each package and an information brochure explaining the Product in detail.
4. You state that the Product is a health food containing a number of uncooked natural grains in powder form and XXXXX.
5. The ingredients of the Product are listed on the Product label and are as follows:
XXXXX.
6. In addition to the ingredients, the back panel of the package contains the following information:
XXXXX
XXXXX.
7. The front of the XXXXXg package contains the following wording:
XXXXX.
8. The Nutrition Facts and Serving Suggestions are shown on a side panel of the package. A serving size is XXXXX. The Serving Suggestion states: XXXXX. The Product is to be stored in XXXXX.
9. The package also contains, in small print, the following wording: XXXXX.
10. The packaging for the XXXXXg size package which contains XXXXX of XXXXXg has a third panel which contains the following information:
XXXXX.
*XXXXX
11. The Product packaging suggests XXXXX. This site was reviewed and the facts which follow were obtained from it.
12. XXXXX.
13. XXXXX.
14. XXXXX:
XXXXX
XXXXX
XXXXX.
15. The Product is not labelled as a meal replacement or nutritional supplement.
Ruling Requested
You would like to know how the GST/HST applies to supplies of the Product.
Ruling Given
Based on the facts set out above, we rule that supplies of the Product are taxable at 5% GST and 13% HST pursuant to section 165.
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 (or 13% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated. Zero-rated supplies are included in Schedule VI. The tax rate in respect of a zero-rated supply is 0%.
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.
Products that qualify and are labeled as "nutritional supplements" or "meal replacements" pursuant to the Food and Drugs Act and Regulations are considered food or beverages for purposes of section 1 of Part III of Schedule VI. Moreover, they are not subject to the exclusions under paragraphs 1(a) to 1(r) of Part III and, therefore, are zero-rated.
In addition, if a product is represented as being a meal replacement or nutritional supplement as evidenced by the label, the Canada Revenue Agency (CRA) will accept this information as fact in determining its tax status.
Based on the Product's Nutrition Facts, the Product does not meet the requirements outlined in the Food and Drug Regulations, to be considered either a meal replacement or a nutritional supplement. In addition, the Product's label does not advertise it as either a meal replacement or a nutritional supplement.
The terms "food" and "beverage" are not defined in the ETA. However, the 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 sustain or maintain life, to allay hunger or thirst, or for enjoyment rather than for therapeutic or preventative effects.
GST/HST Memorandum 4.3, Basic Groceries and Info Sheet GI-01, Products Commonly Described as Dietary Supplements, outline the criteria that the CRA considers in determining whether a product is a food, beverage or ingredient for human consumption or a dietary supplement. These criteria consider the labelling, packaging, and marketing of the product. They also provide explanations of the meanings of food, beverages and ingredients.
"Food and beverages are usually consumed by an average person to sustain or maintain life, to allay hunger or thirst, or for enjoyment. Ingredients add to the flavour, texture or appearance of the final product. A product that is marketed for its beneficial effects and that is added to a food or beverage simply as a way to consume it would not be considered an ingredient. Products commonly referred to as dietary supplements are consumed for their therapeutic or preventative effects (e.g., to correct actual or perceived health problems), or to achieve specific beneficial effects related to performance or physique."
Products commonly described as dietary supplements are not considered to be basic groceries. Dietary supplements include products such as vitamins, minerals, tonics, fibre, protein powders and herbal supplements. These products are generally taken for their therapeutic or beneficial effects and are available in various forms, for example, pill, capsule, tablet, powder, liquid gel, wafer and concentrates. Although these products may contain some essential nutritional elements, they are not considered to be basic groceries.
The Product labelling and marketing indicates that it is a dietary supplement.
• The label and marketing indicate that it XXXXX.
• The label and marketing emphasizes the XXXXX content.
• Many of the Product's ingredients, for example, XXXXX are not commonly regarded as ingredients to basic groceries.
• The label and marketing claims that it will XXXXX.
• The label advises to XXXXX and the marketing states that XXXXX.
• The health benefits of using the Product, such as XXXXX are emphasized and the Product's web site makes a variety of health-related claims.
• The Product is in powder form.
The primary focus is on the expected health benefits of ingesting the Product. Products consumed for beneficial effects do not fall within the meaning of a "food" or "beverage" simply because they are ingested into the body by eating or drinking.
Although some of the criteria in GST/HST Memorandum 4.3, Basic Groceries, may indicate that the Product is not a dietary supplement, on balance it is a dietary supplement for purposes of section 1 of Part III of Schedule VI. As a result, supplies of the Product are taxable at 5% GST or 13% HST as applicable.
The Government of Ontario and the Government of British Columbia have each proposed a harmonized sales tax (HST) which would come into effect on July 1, 2010. The HST rate in Ontario will be 13% of which 5% will represent the federal part and 8% the provincial part. The Government of British Columbia has proposed that the HST rate would be 12% of which 5% would represent the federal part and 7% the provincial part.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at XXXXX. 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,
Nancy Jardine
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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