10 October 2006 GST/HST Interpretation 82602 - Impact of GST rate reduction on holdbacks and progress payments

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 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX (the Product).

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Effective July 1, 2006, the rate of the GST has been reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html on the CRA Web site.

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is sold in XXXXX mL metal cans.

2. The Product container does not have a built-in opening device.

3. The ingredients of the Product are: XXXXX.

4. The Product labelling indicates "nutrition information per XXXXX mL serving".

5. The Product labelling advises to "refrigerate after opening".

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, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is 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 6% on the value of the consideration for the supply (14% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated, pursuant to subsection 165(3). The tax rate in respect of a zero-rated supply is 0%, where a zero-rated supply is a supply that is included 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.

Supplies of beverages (other than unflavoured milk), or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding are excluded from zero-rating under paragraph 1(n) of Part III of Schedule VI, except

(i) when prepared and pre-packaged specially for consumption by babies,

(ii) when sold in multiples, pre-packaged by the manufacturer or producer, of single servings, or

(iii) when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving.

Under this provision, a serving of a beverage is considered to be a single serving when the serving is less than 600 mL. However, in addition to volume, the CRA considers the manner in which a beverage is packaged, marketed and promoted to determine if it is a single serving. Even thought the Product is supplied in a XXXXX mL container, it comes in a sealed can without a built in opening device and the labelling on the Product does not present it as a single serving. As such, the CRA considers that the Product is supplied in a quantity that is greater than a single serving for purposes of the GST/HST. As a result of the application of subparagraph 1(n)(iii) in conjunction with section 1 of Part III of Schedule VI the Product is zero-rated.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9585.

Yours truly,

Ben Boboski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/10/20 — RITS 82610 — [Application of the GST/HST on Fruit Juice Beverages]