8 February 2005 GST/HST Interpretation 54865 - Stock options for independent contractors

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 your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX (the product).

Statement of Facts

Our understanding of the facts, is as follows:

1. The product is individual ice cream sandwiches, sold at the retail level in a XXXXX package containing XXXXX unwrapped sandwiches.

2. The package is designed so that the product fits into shallow slots with very narrow spaces between them.

3. The size of the package is XXXXX ml (XXXXX x XXXXX ml).

4. The product is sold in grocery stores for household consumption, and the individual portions cannot be distributed independently as they are not wrapped.

Ruling Requested

Is the supply of the product zero-rated under section 1 of Part III of Schedule VI to the Excise Tax Act (ETA)?

Ruling Given

Based on the facts set out above, we rule that the supply of the product in a XXXXX package of XXXXX is zero-rated pursuant to section 1 of Part III of Schedule VI to the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% GST or 15% HST, as applicable. However, "zero-rated" supplies of goods and services are subject to tax at 0%. A zero-rated supply is any supply included in Schedule VI to the ETA.

Section 1 of Part III of Schedule VI to the ETA zero-rates supplies of food or beverages for human consumption and sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, unless one of the exclusions set out in paragraphs 1(a) through 1(r) applies.

Paragraph 1(k) excludes from zero-rating:

"ice cream, ice milk, sherbet, frozen yoghurt and frozen pudding, non-dairy substitutes for any of the foregoing, and any product that contains any of the foregoing, when packaged or sold in single servings".

In the case of products listed in paragraph 1(k) of Part III of Schedule VI, which are measured by volume, a single serving is a package or unit of less than 500 ml. In the case of products measured by weight, a single serving is a package or unit of less than 500 grams.

Products such as those enumerated in paragraph 1(k) are considered to be "packaged as single servings" if each individual serving is packaged in its own right. Further, they are considered to be "sold in single servings" if they are designed and marketed for sale as single servings. Preparation or separation of a product into multiple portions does not necessarily result in the "sale of single servings". Where a product is not designed and marketed for sale in single servings it is not considered to be "sold in single servings".

As the product in question is not individually wrapped it is not considered "packaged in single servings"; as it is not designed and marketed for sale in single servings it is not considered to be "sold in single servings". The product therefore is not excluded from zero-rating by paragraph 1(k) of Part III of Schedule VI to the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8530.

Yours truly,

Carolle Mercier
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2005/01/28 — RITS 55951 — Treatment of Instant Rebates