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: 128286
June 9, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Supply of customized meal packages
Thank you for your letter of September 1, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of customized meal packages.
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.
We understand [...] is writing on behalf of a client (the vendor) who is contemplating making supplies of customized daily meal packages to individual consumers.
The vendor will be situated in [...] [Participating Province X]. The vendor proposes to make supplies of meals in various formats or stages of preparation available. Ordering of the meal packages will be facilitated via the internet and deliveries will only take place in [...] [a certain part of Participating Province X]. Prospective customers wishing to order meal packages from a variety of customized plans would register online with the vendor and subsequently order various selections from a set package selection. The variety of combinations of meal packages usually would be selected in a [...] planned format. For example, food will be delivered [...] a week with a supply of [...] meals with each delivery. It is anticipated that there will be a menu of different alternatives for a fixed price per day, such as [...] meals-a-day or [...]. Customers will be able to select from the package selection choices mixing and matching to suit their particular needs.
You have provided us with the following facts for the proposed transactions:
• Vendor will operate a business which is neither a charity nor a non-profit organization and vendor's supplies will not be made to a school authority, university or public college;
• Vendor's proposed major activity is providing general meal packages which may be further prepared/processed/cooked by the consumer for [...];
• Vendor will not supply any services in conjunction with the food other than deliver the meal packages at the customer's request, for no additional charge. Vendor will have no seating or on site retail facilities;
• Vendor will supply and deliver meal packages but will never arrange, heat or serve meals at the customers' locations. Vendor does not provide amenities needed for serving or consuming the food;
• Vendor will offer a selection of different meal packages for a fixed price per day, such as [...]. Customer will be able to select the meal packages from the [...] list which you have included in the submission as Appendix [...]. Vendor will provide [...] controlled packaged meals;
• Meals are priced and tracked separately. They are sold either separately or as a day's supply. When sold as a day's supply, customers normally buy a number of days at a time;
• Meals will be freshly prepared and packaged using a [...] process called [...] which is superior to normal [...] processes. Upon receipt of most of the meal packages, a purchaser will be required to cook the food before it can be consumed as most packages are not completely cooked by the vendor;
• Packages will be delivered [...] per week with a supply of [...] days of meals with each delivery to customers. Once the food is received, the customer is expected to transfer it to [...] [the customer's] fridge as consumption normally takes place over the course of the next [...] days [...];
• The entire supply of the meal packages which use a [...] process will be further cold packed in a [...]. The [...] days of meal packages will be simply left at the front door of the customer;
• Most food is not to be immediately consumed, and the intent is that most of the partially cooked meals packages should not and cannot be immediately consumed as the customers are expected to complete the cooking process. For example, [...];
• The meal packages must be kept in the purchaser's fridge before carrying out the final cooking process using either a [...]. The completion of the cooking process is to be distinguished from merely heating or warming the meal to enhance the meal package's flavour;
• Some meal packages [...] may contain food selections to be consumed or eaten "as is" whilst the majority of meal packages require carrying out the final cooking process before consumption. One meal [...] will be completely cooked but [...] which only require heating (not further cooking). Other meal packages will include salads such as [...];
• Some greens can be made into a salad. However, in most situations the ingredients will be packaged separately using a [...] process with lettuce/leafy greens being in one package, proteins and other vegetables in another package and dressing to be in a separate container;
• The vendor does not consider itself to be a "caterer" and will not use this term or advertise the sale of its products as a form of "catering";
• The vendor will provide food supplies both zero-rated and taxable at the "standard rate". As for taxable supplies at the standard [Participating Province X] HST rate of [...]%, the vendor is proposing to make these supplies on a tax-included basis;
• Attached to the submission are sample food selections under different headings of selections with your initial interpretation as to the tax status for each item.
In your submission you also provided a discussion of the proposed transactions and your conclusions. The following additional information was taken from this section of the submission:
• Another factor to be considered is that the proposed situation envisages multi-meals which have been packaged using the [...] and having a "best before date" whereby the packages stay fresh for up to a week prior to further preparation for consumption.
• [...] or similar food products whereby the ingredients are sealed packages, consisting of several separate packages each of which holds one of the ingredients along with the fact that the purchaser is required to complete the cooking process of the meats before assembling the [...] should be zero-rated. These should be subject to the exception pursuant to paragraph 1(o.2) of Part III of Schedule VI and should qualify as zero-rated food pursuant to section 1 of Part III of Schedule VI.
Appendix [...] of the submission is [listing of meal selections]
Appendix [...] is [...] [listing of several alternative meal packages and two proposed options to account for tax]
Interpretation Requested
You have three issues on which you are seeking clarification from the Canada Revenue Agency (CRA) regarding the proposed facts presented within the submission.
1. That the proposed transactions will not constitute "catering services";
2. The appropriate categorization between food items taxable at the [...]%
[Participating Province X] HST rate ("the standard rate") and zero-rated items;
3. Whether disclosure can be on an HST-included basis when it involves a mixture of supplies made at the standard rate and zero-rated supplies. Alternatively, must the disclosure clearly indicate both the supplies subject to tax at the standard rate and those supplies made on a zero-rated basis?
Interpretation Given
1: Catering services
Based upon the information provided, the proposed transactions of the vendor will not constitute a catering service.
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 to be mixed with or used in the preparation of such food or beverages), other than supplies listed in paragraphs (a) to (r) of that section. Paragraph 1(o.5) of Part III of Schedule VI excludes from zero-rating "food or beverages sold under a contract for, or in conjunction with, catering services".
Catered food and beverages are discussed in detail in paragraphs 123 to 133 of GST/HST Memorandum 4.3 Basic Groceries (MS 4.3). The ETA does not define catering, but MS 4.3 in paragraph 122 provides CRA's understanding of the term, which is as follows:
The CRA considers a caterer to be a person who, at the direction of the customer, supplies prepared meals (including buffet style) or other food or beverages and delivers the order to the premises designated by the customer where the food may be arranged, heated or served by the supplier. Generally, the food is prepared or partially prepared at a site other than the site where consumption will occur. However, catering also includes situations where the caterer provides the raw ingredients and possibly certain amenities, but prepares the food at the premises of (or designated by) the customer where consumption occurs. The CRA makes no distinction between the provisions of "catering" and "catering services" since catering is synonymous with the act of providing a catering service.
If it is not readily determined if a person is a caterer, MS 4.3 in paragraph 123 provides guidelines to be used to determine if catering is being provided. Following is an analysis of these four catering indicators using the facts provided in your submission that support that the vendor is not providing a catering service:
Indicator 1
The processing or arranging of food or beverages includes cooking, heating, preparing, or arranging food or beverages by the supplier. This indicator is intended to capture situations where the order is prepared to the customer's specifications, and all or substantially all of the resulting food can be eaten either immediately or after being warmed. No other processing of the food or beverages by the customer should be necessary.
In the proposed transactions, the vendor will prepare the food based upon the order received from the customer. The meals will be freshly prepared and packaged using a [...] process. However, the food will not be fully cooked and the customer will be required to cook the food before it is consumed. The vendor, at the customer's request will deliver [...] days of meals to the customer, who will be required to refrigerate the meals for up to [...] days prior to consumption. Although the vendor will supply some food items which are ready for immediate consumption, all or substantially all of the food must have the cooking process finished prior to consumption.
Based upon the above proposed transactions, the vendor will not be supplying the food in a form that may be consumed either immediately after delivery or after it is warmed. Most of the meals require more than just heating, the cooking process must be finished. Thus, this indicator has not been met.
Indicator 2
The charge for catering should be based on the number of servings of food or beverages to be supplied. Where items are selected individually from a menu, the charge is considered to be on a per person or per serving basis. When applying this indicator, it does not matter if there are extra charges for such things as delivery, set-up, servers, bar service, linen services, clean up, gratuities, etc. As long as the charge for the food or beverages is based on a per person or per serving amount, then this indicator is satisfied.
Based upon the information contained in the facts, the charge will be based upon a "per serving charge", as the total end cost is based upon the number of servings chosen individually from the menu, such as a per day serving which includes breakfast, lunch and diner, breakfast lunch and dinner and snacks, larger size servings, etc. Therefore, this indicator has been met.
Indicator 3
One of the indicators of a catering contract is that the food or beverage is delivered to the customer, or a place specified by the customer. Normally, delivery is made shortly before the food is to be consumed, so that the food is not stored on the recipient's premises for any considerable length of time.
Based upon the proposed facts, the food is not delivered shortly before the food is consumed. The food is to be packaged using a [...] process to extend its self-life and is further packed in a [...]. The food may be consumed as long as [...] days after it is delivered and must therefore be refrigerated by the customer. Most of the meals also require further cooking prior to eating. Therefore, this indicator is not met.
Indicator 4
Another indicator of a catering contract is that some or all of the necessary amenities for either serving or consuming the food or beverages are supplied with the food or beverages. Food arranged for aesthetic purposes on a serving platter (a "party platter") would be regarded as having been supplied with an amenity. Such amenities do not include, however, a disposable container that the food was delivered in, even if the food may be consumed directly from the container.
Based upon the proposed facts, the vendor will not be supplying any amenities for either serving or consuming the food. This factor has not been met, indicating that the vendor is not supplying a catering service.
In summary, the proposed activities of the vendor only process one of the indicators that are generally found in catering services. Therefore, the proposed activities of the vendor will not constitute catering services.
2. Tax status of menu items
As the proposed activities of the vendor are not those of a catering service, the tax status of the menu items will fall under section 1 of Part III of Schedule VI, which zero-rates supplies of food or beverages for human consumption except for those supplies excluded by paragraphs 1(a) to (r) of that same Part and Schedule.
Meals requiring further preparation or not heated for consumption
As proposed in your submission, all meals which require further steps to complete the cooking process, since these meals will be only partially cooked and will require heating at a specific temperature for a set period in order to complete the cooking process, will not be excluded by any of paragraphs 1(a) to (r) of Part III of Schedule VI. These meals will therefore be zero-rated as basic groceries. This will include all meals which require further cooking, whether they are included as breakfast, lunch or dinner meals (i.e., breakfast items such as[...]), as well as the [...] as it is sold cold and requires heating prior to consumption.
Salads
A number of salads are included in the proposed meal selections. Paragraph 1(o.1) of Part III of Schedule VI excludes from zero-rating "salads not canned or vacuum sealed".
In the case of a salad, there are three issues to be determined:
1. Is the salad a salad which would be excluded by paragraph 1(o.1)?
2. Is the salad vacuum sealed and thus not excluded by paragraph 1(o.1)?
3. Is the salad a salad kit which is considered to be a basic grocery and not excluded by any of paragraphs 1(a) to (r) of Part III of Schedule VI?
Each of these possible treatments will be looked at below.
1. Meaning of the term "salad"
When examining paragraph 1(o.1), first it is necessary to determine whether a particular product is, in fact, a salad for purposes of the ETA. Salads are discussed in paragraphs 104 to 109 of MS 4.3. Paragraph 105 explains the meaning of salad. Salads are considered to include ingredients such as chopped, shredded, diced, sliced, or pureed vegetables, meat, fish, egg, or other food supplied with a dressing and/or seasoning(s), whether or not the dressing is mixed with the other ingredients. A combination of one ingredient mixed with a dressing or seasoning(s) that is sold or represented as a salad is also considered to be a salad. Fruit salads and gelatine salads generally do not need a dressing to be considered a salad.
2. Is the salad a vacuum sealed salad and thus not excluded by paragraph 1(o.1)?
Paragraph 107 of MS 4.3 states that all supplies of salads in cans or in containers that are vacuum sealed are zero-rated. There are various processes used in the food industry for vacuum sealing. It is a question of fact whether a particular product is vacuum sealed. A common process used by the food industry is a process whereby oxygen is removed from a package and it is replaced with a gas or mixture of gases. This process is commonly referred to as modified atmosphere packaging (MAP) where the atmosphere inside a package has been changed to different proportions from the basis found in ambient air. This process is designed, among other things, to ensure microbiological safety and also to increase the shelf life of a product. The CRA does not consider this process to be vacuum sealing for purposes of paragraph 1(o.1).
A salad which is packaged using only the [...] process would thus not be considered to be vacuum sealed for purposes of paragraph 1(o.1) and would be subject to tax, unless the salad was a salad kit. Salad kits are explained in the next section below.
3. Is a salad a salad kit which is considered to be a basic grocery and not excluded by any of paragraphs 1(a) to (r) of Part III of Schedule VI?
The CRA position on salad kits is provided in paragraph 109 of MS 4.3. A package that contains the ingredients for a salad where the ingredients are not mixed, such as a package containing lettuce, croutons and dressing (i.e., where the ingredients are in separate containers) and that require mixing by the consumer, is not considered to be a salad for purposes of the GST/HST. The supply of a package of salad ingredients as described above is considered to be a supply of basic groceries and is zero-rated. Thus, salads listed in the proposed menu selection that are packaged as described above would be zero-rated.
Sandwiches
Some of the menu selections are sandwiches. Paragraph 1 (o.2) of Part III of Schedule VI excludes from zero-rating sandwiches and similar products other than when frozen. Sandwiches are covered in paragraphs 110 to 113 of MS 4.3. Paragraph 110 states that "frozen" is understood to mean to be maintained at a temperature equal to or less than zero degrees Celsius. Cooled or refrigerated sandwiches are considered suitable for immediate consumption when kept at a temperature above zero degrees Celsius.
Paragraph 111 of MS 4.3 states that sandwiches and similar products are regarded as something which can be consumed with little or no preparation, consisting of one or more pieces of bread, with meat, cheese, savoury or other topping or filling, all of which are suitable for immediate consumption. Paragraph 112 goes on to state that bread includes, but is not limited to, such things as flour and corn tortillas, pita bread, naan bread, flatbread, foccacia, croissants and bagels.
Paragraph 113 of MS 4.3 states that the tax applies on the sale of all sandwiches or similar products regardless of whether they are in a refrigerated cooler or fresh. The product would be considered a sandwich or similar product if the bread is cooked, i.e., ready-to-eat, and is wrapped around a ready-to-eat filling. Some examples include hot dogs, hamburgers, open-faced sandwiches, toasted sandwiches, submarines or hero sandwiches and pita bread or tortillas sold with a mixture of prepared food in the pocket or wrapped as a roll.
Keeping the above points in mind, the sandwiches in the proposed meal selections contain a baked bread product [...]. The sandwich's filling is "ready-to-eat" in some cases [...], but for some must be cooked [...]. Therefore the "ready to eat" sandwiches will be subject to tax and those which require assembly and further cooking of the filling will be zero-rated.
Breakfast items
The proposed menu selections contain a number of foods which are sold as breakfast items which may be excluded by a number of the paragraphs of section 1 of Part III of Schedule VI.
Paragraph 1(m) of Part III of Schedule VI excludes from zero-rating
Cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where
(i) they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or
(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six,
but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating;
Sweetened goods and similar products are explained in paragraphs 87 to 100 of MS 4.3. Goods that are taxable under paragraph 1(m) of Part III of Schedule VI, as listed in paragraph 93 of MS 4.3 include muffins and muffin bars, loaves/breads such as banana or carrot loaf and cereal bars.
We have not been provided with the size of the muffins, [...] loaf or cereal bars. For GST/HST purposes, a single serving of cake, pie, muffin, pastry, tart, cookie, doughnut, brownie, croissant with a sweetened filling or coating or a similar product is a serving weighing less than 230g. If each muffin, bar or loaf piece is less than 230g, each would be excluded from zero rating by paragraph 1(m) of Part III of Schedule VI when it is sold singly.
Paragraph 1(h) of Part III of Schedule VI excludes from zero-rating granola products, but not including any product that is sold primarily as a breakfast cereal. Provided that the granola cereal is a breakfast cereal, it would not be excluded from zero-rating under this provision. This paragraph would also not apply to exclude from zero-rating the oatmeal with dried fruit if it is promoted as a breakfast cereal.
Granola products are discussed in paragraphs 62 to 66 of MS 4.3. Paragraph 64 states that granola bars generally have a mixture of cereals (e.g., rolled oats, rice, or other whole grains) and honey and/or syrup as the main ingredients, and may include nuts and dried fruit. The ingredients in granola bars are not processed to a great extent, thereby retaining the distinct character of each ingredient within the bar. Granola bars may have a chocolate or sweetened coating.
In paragraph 65 of MS 4.3, it is stated that bars that contain a mixture of cereals and honey and/or syrup, where the ingredients have been processed to the point that they have lost their distinct character, are not considered to be granola bars, but rather cereal or muffin bars. The treatment of these bars may be excluded by paragraph 1(m) of Part III of Schedule VI, as discussed above.
The submission included [...] as an item which may be sold as a breakfast menu item. The description of this bar was not provided. Where the bar contains a mixture of cereals, brown sugar, honey, and/or syrup as the main ingredients, the bar will be taxable as it meets the description as a granola bar. Where the ingredients of the bar are processed to the point that they have lost their distinct character, it would be a cereal or muffin bar which is subject to the provisions of paragraph 1(m) of Part III of Schedule VI, as discussed above.
Mixed supply of zero-rated groceries and taxable products
You asked in your submission if paragraph 168 of MS 4.3 can be used to determine the tax status of the supply of a [...] day meal package which consists of a minimum of [...] breakfasts (all zero-rated) and [...] dinners (all zero-rated). This paragraph reads as follows:
Generally, where a package of multiples of similar foods or beverages contains more than 50% otherwise zero-rated goods, the supply of the package will be zero-rated. Where a package of multiples of similar foods or beverages contains 50% or less otherwise zero-rated goods, the supply of the package will be taxable at 5% GST or 13% HST, as applicable.
In order for the supply of the meal packages to use the provisions in paragraph 168, the supply must meet a number of conditions. The supply must be a package which consists of multiple similar foods.
The word package is not defined in policy, so the common meaning is used. The Concise Oxford Dictionary, Tenth Edition, has a number of definitions for package "an object or group of objects wrapped in paper or packaged in a box" or "combine (various products) for sale as one unit".
As provided in Appendices [...] and [...], the vendor will not be supplying a set meal package for a single price. There are an infinite number of combinations of meals that may be included in a daily package and is referred to in the submission as a [...] selection. Although the meal packages will be sold for a single price, the composition of the "package" is not set by the vendor. Each combination would require that the tax status of each food item in the selection would need to be determined prior to determining the tax status of the package as a whole. As this determination would be required to be made by the vendor at the time of listing or advertising the package, it will not be possible as it is the customer who will make the menu selection based upon their preferences. The vendor is thus not selling a package for a single pre-determined price.
As the meal package is made up of a number of individual meals or snacks, the multiple requirement has been met.
For purposes of section 1 of Part III of Schedule VI, similar foods are those food items which would be grouped into the same categories as the exclusionary paragraphs of section 1 of Part III of Schedule VI. For example, salted nuts and unsalted nuts would be similar as the exclusion for nuts is contained in paragraph 1(g).
The meal package will be comprised of zero-rated basic groceries and food excluded by paragraphs 1(a) to (r) of Part III of Schedule VI. Using the understanding of similar from above, the meal package contains multiples of different types of food products and is not "multiples of similar foods". It can not be said that the vendor will be making a single supply of a package of multiples of similar foods and therefore the policy contained in paragraph 186 of MS 4.3 will not apply to the supply.
3. Tax disclosure
The final issue on which clarification is asked is whether disclosure can be on an HST-included basis when it involves a mixture of supplies made at the standard rate and zero-rated supplies. Alternatively, must the disclosure clearly indicate both the supplies subject to tax at the standard rate and those supplies made on a zero-rated basis?
The ETA imposes certain requirements with respect to the disclosure of tax on invoices, receipts or in other ways to provide recipients with sufficient information to enable them to ascertain whether they have satisfied their liability to pay tax on taxable supplies. A person who makes a taxable supply must furnish, upon request, sufficient information, in writing, to substantiate a claim for an ITC or rebate.
Registrants making taxable supplies (other than zero-rated supplies) of goods and services are required to disclose to purchasers, in one of the following three ways, that the tax has been charged on the supply:
• by indicating on receipts, invoices or in a written agreement the consideration paid or payable and the actual amount of tax payable on the supply in a manner that clearly indicates the amount of tax;
• by indicating on receipts, invoices or in a written agreement that the amount paid or payable includes the tax payable on the supply; or
• in a manner prescribed by regulation (Disclosure of Tax (GST/HST) Regulations), such as by giving clearly visible notice to the recipient of a taxable supply at the place where the supply is made that the price includes the tax.
If a registrant chooses to indicate the amount of GST/HST on invoices, receipts or written agreements, whether or not in conjunction with the use of signs, the total amount of tax payable or the total of the rates (i.e., 5%, 12% ,13% or 15%) at which tax is payable must be indicated on the invoices, receipts or agreements.
Subsection 165.2(1) provides that where two or more taxable supplies are included in an invoice, receipt or agreement and that tax is imposed at the same rate, the tax may be calculated on the total consideration for those supplies. For example, if all the supplies included in an invoice are taxable at 13%, the tax may be calculated on the total consideration for those supplies as opposed to calculating the tax on the consideration payable for each separate supply and then totalling the tax payable.
In the submission, it was proposed that the tax be accounted for in either of the two ways as shown below:
1) Price shown as HST included
Alternative (A): Breakfast, Lunch, Dinner $ [...] (includes HST)
2) Price shown with HST extra
Price [...]%
Price shown as HST & Delivery Separately includes delivery Taxes Total
Alternative (A): Breakfast, Lunch Dinner $[...] [...] $[...]
If option 1 was used, the provisions in subsection 165.2(1) would apply. This subsection may be used when there are two or more taxable supplies which are all subject to tax at the same rate. However, some items in the total consideration are zero-rated and some are taxable at [...]%. If option 1 was used, the price would be shown as $ [...] including HST. Using the general principle of calculating the tax in a tax included amount would result in the following calculation for a supply made in [Participating Province X]: $[...] x [...] divided by [...] = $[...]. Therefore, this option may not be used to correctly disclose the amount of tax paid as the amount of tax included in the $[...] is actually only $[...].
However, as shown in option 2, not all of the food items that make up the meal in question are subject to tax. Based upon the tax amount of $[...], only $[...] was treated as a taxable sale. Therefore, option 2 will be the method that the vendor would be required to use to correctly disclose the tax to its customers. This method uses option (a) described above which indicates clearly on the invoice or receipt the consideration paid or payable by the recipient and the actual amount of tax payable in respect of the supply.
As an alternative, all items taxed at the same rate ([...]%) could be shown as a tax included amount and all of the zero-rated item would be shown separately.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (902) 426-6940. 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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