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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 112685
October 14, 2010
Dear XXXXX:
Subject:
GST/HST RULING
Application of GST/HST to XXXXX Juice
Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX Juice (the Product).
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, Newfoundland and Labrador, and 12% in British Columbia. 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 purchase the Product from XXXXX.
2. The Product is sold ready to drink in XXXXX ml XXXXX bottles.
3. The Product consists of 99% fruit juice.
4. No vitamins or minerals are added to the Product.
5. The Product does not contain caffeine.
6. The Product is not carbonated.
7. The Product contains XXXXX added as an ingredient.
8. The Product does not have a Drug Identification Number.
9. The Product label lists the following XXXXX ingredients: XXXXX.
10. The Product label states:
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
11. The XXXXX Website states:
• XXXXX.
• XXXXX
• XXXXX.
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, or 12 %, 13%, or 15% 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 (15% in Nova Scotia, 13% in Ontario,
New Brunswick, Newfoundland and Labrador, and 12% in British Columbia) unless the supply is zero-rated. The tax rate in respect of a zero-rated supply is 0%, where a zero-rated supply is a supply that is included in Schedule VI.
Section 1 of Part III of Schedule VI zero-rates supplies of food and beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), other than supplies excluded under 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 rather than for therapeutic or preventative effects.
With respect to ingredients, a product is an ingredient if an average consumer would recognize the product as an ingredient into food or a beverage. 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, would be considered to be a food or beverage by the average consumer.
Products that are labelled or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product, for example, therapeutic or preventative effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages.
GI-01, Products Commonly Described as Dietary Supplements, and GST/HST Memoranda Series 4.3, Basic Groceries, outline the criteria the CRA considers in determining whether a product is a food, beverage or ingredient for human consumption or a dietary supplement. The criteria include a product's labelling, packaging/format, and marketing.
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 including 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 following factors as listed in GI-01, Products Commonly Described as Dietary Supplements are criteria that indicate a particular product is not a basic grocery item.
• The label or marketing material refers to the product as a "dietary supplement" or "supplement".
• The label or marketing material claims that the product has a therapeutic or preventive effect, enhances mental or physical performance, or enhances physique.
• The label or marketing material emphasizes a particular nutrient that is not commonly regarded as an ingredient to basic groceries; for example, whey protein isolate or chlorophyll.
• The product may also emphasize the purity or source of the nutrient.
• The label or marketing material indicates a dosage size and how often the product should be taken. There may also be warnings advising certain people such as children or pregnant women not to take the product, or that the product is to be taken only as directed by a physician.
• The product has a Drug Identification Number (DIN), a Drug Identification Number Homeopathic Medicine (DIN-HM), or a Natural Products Number (NPN).
• The product lists the active or XXXXX ingredients.
• The product is compared to other products that are not considered to be food, beverage or ingredient. For example, a product in powder form may be compared to a product in pill form.
• The label or marketing material focuses on the benefits to be derived from taking the product.
• The product is in a form not commonly associated with food, beverages or ingredients, for example, pills, capsules, tablets, gels, liquids in eye-dropper bottles, fibres, wafers, powders and concentrates.
• In sales catalogues or stores, the product is not placed with products that are commonly recognized as foods, beverages or ingredients. The product may be placed with non-prescription drugs.
Therapeutic/preventative claims are made in respect of the Product and its benefits are touted.
Nutrients not commonly regarded as an ingredient to basic groceries (e.g., XXXXX) contained in the Product are emphasized. XXXXX ingredients and warnings are listed on the Product label. While the Product is sold in a juice format and could be consumed to quench thirst, this is secondary to its primary purpose, which is to provide a means to consume the nutrients that it contains.
As a result of the application of the criteria outlined in GI-01, Products Commonly Described as Dietary Supplements, and GST/HST Memorandum 4.3, Basic Groceries, the Product is a dietary supplement for GST/HST purposes. Consequently, supplies of the Product are taxable at 5% GST, or 12 %, 13% or 15% HST as applicable.
DIRECT SELLERS
Appropriations by Independent Sales Contractors
XXXXX is a direct seller approved to use the alternative collection method (ACM) for GST/HST purposes.
Generally, under the ACM, when a direct seller makes a supply of an exclusive product (other than a zero-rated supply) to an independent sales contractor (ISC), the direct seller charges the ISC GST/HST calculated on the suggested retail price of the exclusive product. "Suggested retail price" means the lowest price published by the direct seller applicable to supplies of the exclusive product made to purchasers, but does not include any amount on account of tax. To be clear, the direct seller charges the ISC GST/HST calculated on the suggested retail price, even though the direct seller only charges the ISC the wholesale price of the exclusive product. Generally, if you are an ISC, this would explain why the amount of GST XXXXX charged to you is greater than 5% of the wholesale price.
Normally, the ISC would recover the GST/HST paid to the direct seller calculated on the suggested retail price by keeping the GST/HST collected from the purchasers. However, when an ISC appropriates an exclusive product for his or her consumption, use or enjoyment, the ISC will not be able to recover the GST/HST paid to the direct seller calculated on the suggested retail price.
When such an appropriation occurs, subsection 178.3(4) provides that if the direct seller pays or credits the ISC the difference between the GST/HST that the direct seller charged the ISC calculated on the suggested retail price, and the GST/HST that the direct seller would have charged the ISC calculated on the wholesale price, the direct seller may deduct that amount in determining its net tax for the particular reporting period in which the payment or credit is given to the ISC, or in its net tax for a subsequent report period within four years after the day on or before which the return for that particular reporting period must be filed.
Please note that nothing in the ETA requires the direct seller to pay or credit the amount of the difference to the ISC when there is such an appropriation. The ETA only provides that the direct seller can take a deduction on its net tax if it chooses to pay or credit the difference to the ISC.
Shipping & Handling
With respect to shipping and handling fees, the application of GST/HST depends on the facts of each case.
Where goods are supplied on a delivered to destination basis, such as FOB recipient's address, generally, any additional fees attributed to shipping and handling form part of the price for a single supply of the good. In other words, when the title to an exclusive product passes at the time the ICS receives the exclusive product, the shipping & handling forms part of the single supply of the delivered exclusive product.
When dealing with a single supply of delivered exclusive products, the shipping and handling fee is part of the suggested retail price on which the direct seller charges GST/HST. Consequently, provided that the supply of the exclusive product is not a zero-rated supply, the direct seller charges the ISC GST/HST calculated on the suggested retail price which includes the shipping and handling fee. The ISC recovers from the purchaser an amount for the GST/HST calculated on the suggested retail price including the shipping and handling fee.
On the other hand, where goods are supplied on a shipping basis, such as FOB shipper's address, generally, any additional fees attributed to shipping and handling are the price for a separate supply of a service of shipping and handling, and not part of the price for the supply of the goods.
Where the direct seller makes a separate supply of a service of shipping or handling, the service of shipping or handling is regarded as a "sales aid" as defined in section 178.1. In this regard, subsection 178.5(5) provides that the direct seller does not charge the ISC GST/HST on the supply of a sales aid, and therefore, the direct seller does not charge GST/HST on the shipping and handling fee.
For more information, please refer to GST/HST Info Sheet G1-023, Direct Seller's Sales Aids, a copy of which is enclosed.
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
Enc. GST/HST Info Sheet G1-023, Direct Seller's Sales Aid
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