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: 133549
Business Number: [...]
August 8, 2011
Dear [Client]:
Subject:
GST/HST RULING
Store brand food products
Thank you for your letter of February 28, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a number of store brand food products.
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. [...] (the Company) is a subsidiary of [...] (the Parent Company). The Parent Company is a leading global [...] supplier that develops, manufactures and distributes over-the-counter (OTC) and prescription pharmaceuticals, nutritional products, active pharmaceutical ingredients and consumer products. The Parent Company is the [...] manufacturer of OTC pharmaceutical products for the store brand market.
2. The Company is located in [...] [Country X] and is registered for GST/HST purposes with Business Number [...]. The Company is requesting rulings for its customers in Canada on the products listed below.
• [...] (Product A)
• [...] (Product B)
• [...] (Product C)
• [...] (Product D)
• [...] (Product E)
• [...] (Product F)
• [...] (Product G)
3. The following information regarding each of the products was obtained from the labels provided with the submission, web sites and sample products.
4. Product A is sold by [...] (Company A). The products are packaged in a [...] re-sealable container containing [...]g, which is about [...] servings of [...]g each. The individual pieces are [...].
The products are labelled as [...] and are described on the label as a [...] which is [...]. These products are available in [...] flavours; [...]. The ingredients for [...] flavours are very similar.
The ingredients of the [...] flavour are: [...].
5. Product B is sold by [...] (Company B). The products are labelled as [...] and are described on the label as [...]. The individual pieces are [...]. They are packaged in a [...] re-sealable container which contains [...]g, which is approximately [...] servings at [...]g each. The products are available in [...] flavours; [...]. The ingredients for all [...] flavours are very similar.
The ingredients for the [...] flavour are: [...].
The product label for the [...] flavour also contains the following information about the product: [...]
6. Product C and Product D are sold by Company B. Both products are packaged in a re-sealable [...] containing [...]g.
Product C is [...] flavoured and come in [...] pieces which are about [...]cm in diameter and approximately [...]cm thick. A recommended serving size is [...] pieces. [...] are labelled as [...] and [...]. The ingredients of this product are: [...].
Product D is [...] flavoured and come in [...] pieces which vary in [...] from approximately [...]cm to [...]cm. The Nutrition Facts are based upon a serving size of [...] pieces. They are labelled as [...]. The ingredients of this product are: [...].
7. Product E are sold by Company B. They are sold in re-sealable [...] containing [...]g or about [...] servings of [...]g each. The product is available in [...] flavours, [...]. The ingredients of [...] are very similar.
The ingredients of the [...] are: [...].
In addition to the product name, the labelling contains the following wording: [...]
8. Product F is sold by Company B. They are sold in re-sealable [...] which contain [...] servings at [...]g each for a total of [...]g per package. The label supplied is for [...], but the Web site for Company B includes a [...] flavour, [...]. The only ingredient in the [...] [Variety 1] is [...] dried [...]. The ingredients in the [...] [Variety 2] are [...] dried [...] and [...] dried [...].
Company B's Web Site contains the following description of the Product F: [...]
9. Product G is sold by (Company C). Two sample labels were provided for [...] [Variety 3] and [...] [Variety 4]. Both are sold in [...]g re-sealable [...]. The labelling describes the products as [...]. The ingredients for [Variety 3] are [...] dried [...] and [...] dried [...]. The ingredients for [Variety 4] are [...] dried [...] and [...] dried [...].
10. You state in your submission [...].
Ruling Requested
You would like to know if the above products are zero-rated as basic groceries.
Rulings Given
Based on the facts set out above, we rule that
1. Product A and Product B are zero-rated under section 1 of Part III of Schedule VI.
2. Product C is zero-rated under section 1 of Part III of Schedule VI.
3. Product D is taxable at 5% GST or 12%, 13% or 15% HST pursuant to section 165.
4. Product E is taxable at 5% GST or 12%, 13% or 15% HST pursuant to section 165.
5. Product F [Variety 1] is zero-rated under section 1 of Part III of Schedule VI.
6. Product F [Variety 2] and Product G [Variety 3] and [Variety 4] are taxable at 5% GST or 12%, 13% or 15% HST pursuant to section 165.
These rulings are 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, and Newfoundland and Labrador and 12% in British Columbia) unless the supply is zero-rated. Pursuant to subsection 165(3), the tax rate in respect of a zero-rated supply (i.e., a supply included in Schedule VI) 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.
Ruling 1 Product A and Product B
Paragraph 1(f) of Part III of Schedule VI excludes from zero-rating supplies of chips, crisps, puffs, curls or sticks (such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls), other similar snack foods or popcorn and brittle pretzels, but not including any product that is sold primarily as a breakfast cereal.
GST/HST Memoranda Series 4.3, Basic Groceries (MS 4.3) outlines factors that are used to determine if a particular product is similar to a chip, crisp, puff, curl or stick as described under paragraph 1(f) of Part III of Schedule VI. These factors include the properties of the product (ingredients, flavours, texture, cooking process and appearance), its labelling, its packaging, and its marketing.
While these products may have some of the properties similar to those listed in MS 4.3, the physical properties, packaging and marketing are different from those generally used for "other similar snack food". Specifically, the products do not have the physical properties (ingredients, flavouring, texture and shape) usually associated with snack food.
Based upon the facts, the products are not "other similar snack foods" as listed in paragraph 1(f) of Part III of Schedule VI. Supplies of the products are zero-rated as they do not fall within any of the exclusions to section 1 of Part III of Schedule VI.
It should be noted that no one factor is determinative of the tax status of a product and changes in the labeling, packaging and/or marketing (e.g., a change in the product name or varieties offered) would not necessarily result in a different tax status. All factors must be considered in determining whether a product falls within paragraph 1(f) of Part III of Schedule VI.
Ruling 2 Product C
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;"
It is our position that the product is considered to be "similar products" for the purpose of paragraph 1(m) of Part III of Schedule VI. The administrative threshold for a single serving under paragraph 1(m) only has a maximum threshold of less than 230 grams. There is no minimum threshold. The product label states that each serving consists of [...] pieces, resulting in there being about [...] servings per package.
Therefore the product is being supplied pre-packaged for sale to consumers in quantities of greater than six items, each of which is a single serving. As a result, the product will not be excluded from zero-rating by paragraph 1(m) of Part III of Schedule VI. As the product is a food that is not included in any of paragraphs (a) to (r) of section 1 of Part III of Schedule VI, supplies of the product are zero-rated under section 1 of the same Part and Schedule.
Ruling 3 Product D
As provided above in the explanation for Ruling 1, paragraph 1(f) excludes from zero-rating certain types of snack foods. The factors outlined in MS 4.3 that are used to determine if a particular product is similar to a chip, crisp, puff, curl or stick as described under paragraph 1(f) of Part III of Schedule VI were used to analyse this product.
The product has [...] flour as its main ingredient, which is consistent with the snack foods enumerated in paragraph 1(f). In addition, the product's [...] flavour is one which is typically associated with these snack foods. Furthermore, the appearance (small bite-size pieces), shape [...] and the texture (crunchy) are similar to those enumerated under paragraph 1(f). The products are packaged loosely in a re-sealable container.
Product D is therefore considered to be "similar snack foods" for purposes of paragraph 1(f) of Part III of Schedule VI. As such, the product is excluded from section 1 of Part III of Schedule VI and supplies of the product are subject to the 5% GST or 12%, 13% or 15% HST, as applicable.
Ruling 4 Product E
Paragraph 1(l) of Part III of Schedule VI excludes "fruit bars, rolls or drops or similar fruit-based snack foods." from zero-rating.
"Fruit-based" implies a mixture of fruit and at least one other ingredient. Products having fruit as an important ingredient, such that the product is represented to consumers as being fruit-based, will be within this exclusion. It may also mean that a product is not dominantly composed of fruits and may refer to the use of fruit for flavouring purposes.
As the product has fruit as an important ingredient and is marketed as being fruit based, it is considered to be a fruit based snack food for the purposes of the above provision. Therefore, supplies of the product are excluded from zero-rating pursuant to paragraph 1(l) of Part III of Schedule VI and are taxable at the rate of 5% GST or 15%, 13% or 12% HST, as applicable.
Ruling 5 Product F and Ruling 6 Product G
Paragraph 1(i) of Part III of Schedule VI excludes the following from zero-rating:
"Snack mixtures that contain cereals, nuts, seeds, dried fruit or any other edible product, but not including any mixture that is sold primarily as a breakfast cereal."
A "snack mixture" is described in GST/HST Info Sheet GI-021, Snack Foods, as a mixture of two or more of the ingredients noted in paragraph 1(i) of Part III of Schedule VI. A product containing two or more types of the same kind of ingredient, such as two or more kinds of dried fruit (e.g., dried bananas and strawberries), would be considered a snack mixture and, therefore, taxable at 5% GST or 12%, 13% or 15% HST, as applicable. A product containing only one type of fruit is not considered to be a snack mixture.
As three of the products, Product F [Variety 2], and Product G [Variety 3] and [Variety 4] each contain two types of [...] dried fruit, these products will be excluded from zero-rating by paragraph 1(i) of Part III of Schedule VI and will thus be subject to tax at 5% GST or 12%, 13% or 15% HST, as applicable.
The Product F [Variety 1] contains only [...] and therefore it will not be excluded from zero-rating under paragraph 1(i) of Part III of Schedule VI.
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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