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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 128466
December 24, 2010
Dear [Client]:
Subject:
GST/HST RULING
Zero Rating for [...] [Flavoured Liquid Products]
Thank you for your letter of August 30, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of [Flavoured Liquid Products] (the Product).
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and 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. [...] has requested a ruling regarding the tax status of the Product.
2. The Producer has stated that the Product is an addition to [...] line-up of products and that [...] flavours are considered formulated liquid diets under Division 24 of the Food and Drug Act Regulations.
3. The Product label states [...].
4. The Product is sold in multiples of [...].
5. The Product is sold ready to serve.
6. The Product is available in [...] flavours; [...].
7. The package of the Product is in English and French.
8. The Product's [...] ingredients are: [...].
9. The Product's [...].
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 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
Supplies of property or services made in Canada are either taxable supplies or exempt supplies. Exempt supplies are listed in Schedule V and are not subject to the GST/HST. Taxable supplies are either subject to the GST at the rate of 5% or HST at the applicable rate where the supply is made in a participating province, or are zero-rated supplies (taxable at the rate of 0%) listed 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.
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.
Products that qualify as formulated liquid diets under the Food and Drug Act and Regulations are considered basic groceries for GST/HST purposes. All supplies of formulated liquid diets are zero-rated (except when sold from a vending machine). We accept that the Product is a formulated liquid diet as the label represents the product as such; consequently its supplies are zero-rated.
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 613-954-5124. 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,
Angela Stachowski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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