24 August 2005 GST/HST Interpretation 50074 - XXXXX

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.

Dear XXXXX:

Thank you for the letter XXXXX (with attachments) from XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the powdered protein products described below.

For the reasons discussed in our telephone conversation, we are issuing an interpretation on this matter.

Interpretation Requested

You wish to know whether your client should be charging GST/HST on its sales of the above-noted products.

Interpretation Given

Powdered protein products are generally taxable at 7 per cent GST or 15 per cent HST. Based on the information provided, sales of the powdered protein products in question are taxable at 7 per cent GST or 15 per cent HST.

The products in question are low carb, low fat, low calorie and high protein in content. They are generally instant products, in that they come in powder form to be mixed with, in most cases, water or milk. Some powders are meant to be mixed with one or two other ingredients in addition to water or milk and some are then baked. The powders make final products that come in various flavours and formats XXXXX.

The preamble to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA) zero-rates the following:

"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 of ..."

Paragraphs 1(a) to (r) contain the exclusions from zero-rating. However, before considering whether any of the exclusionary paragraphs apply, it is first necessary to determine whether a particular product is in fact a food, beverage or ingredient for purposes of the preamble.

The words "food", "beverages" and "ingredients" are not defined in the ETA. Policy Statement P-240, Application of GST/HST to Products Commonly Described as Dietary Supplements, (copy enclosed) addresses the question of whether products commonly described as "dietary supplements" are zero-rated as foods, beverages or ingredients. The policy states that "... in general, food and beverages are consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment, rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique." Please note that this policy does not apply to meal replacements and nutritional supplements (as defined in regulations to the Food and Drugs Act). The products in question are neither meal replacements nor nutritional supplements.

The salient points contained in the policy statement with respect to food and beverages are:

•   a product will be a food or beverage if an average consumer would recognize and purchase the product as a food or beverage;

•   the determination is based on the views of an average consumer - individual preferences for, or dislikes of, certain products, or special dietary needs of certain segments of the population such as those with restricted or special purpose diets, are irrelevant;

•   consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst - in general, food and beverages are consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment, rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique; and

•   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 preventive 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 (e.g., products in pill, tablet, or capsule format).

The policy then lays out more specific criteria for determining whether a product is a dietary supplement, based on the following sources:

•   labelling;

•   packaging/format; and

•   marketing.

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 our view 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.

As with food and beverages, it is also recognized that some products that would be considered to be ingredients by an average consumer have no nutritive value. It is also recognized that consumers may select and add certain products to mix with or include as part of their preparation of food and beverages for the particular nutritive value that the product offers. However, our view is that products that are consumed for their therapeutic, preventative, or performance or physique enhancing properties would not be recognized by an average consumer as ingredients.

In addition, a product that is marketed for its beneficial effects, and that is added to a food or beverage simply as a means of consuming it, would not be considered by an average consumer as an ingredient simply because it is ingested in this manner. For example, granulated or powdered fibre marketed for its beneficial effects to the digestive system is normally added to a glass (e.g., eight oz.) of juice, milk, or water as a means of consuming it. Nevertheless, in this instance, fibre is not an ingredient to be mixed with, or used in the preparation of, a beverage.

The criteria used to determine whether a product is a food or beverage can also be applied to products used as ingredients.

Considering all of the criteria in Policy Statement P-240, on balance the powdered protein products in question appear to be dietary supplements. The promotional material makes reference to regulating weight and use by athletes who want to maintain a lean muscular mass without gaining weight and while staying on a healthy diet. It also helps to preserve good muscle tone. The products are identified specifically as protein foods. Protein by itself is not commonly regarded as an ingredient. The brochure published by the manufacturer and its web site provide information on protein and the quality and types of protein used in the various products. There is a statement that it is perfect for those who want to lose weight by following their protein diet program. The brochure promotes the products for use by athletes and those conscious of their weight. XXXXX. It states that the products can be found in gyms, natural foods stores, supplement shops, spas, etc. The boxes XXXXX state that a doctor's approval is recommended during XXXXX. These factors indicate that the products are marketed for their beneficial effect in reaching a specific, physique-enhancing outcome.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-7909.

Yours truly,

Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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