22 September 2006 GST/HST Ruling 82619 - 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 your request 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 packaged in XXXXX mL XXXXX containers and sold in shrink-wrapped multiples of XXXXX containers.

2. The packaging contains the following information about the Product:

•   it is identified as XXXXX;

•   it contains XXXXX;

•   there is a XXXXX;

•   the product has XXXXX; and

•   the label lists XXXXX.

3. XXXXX.

4. XXXXX.

5. The Product contains XXXXX% natural fruit juice.

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 the Product is taxable at 6% GST or 14% HST pursuant to section 165.

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.

Section 1 of Part III of Schedule VI zero-rates supplies of food and 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 excluded under paragraphs (a) to (r) of that section.

GST/HST Policy Statement P-240, Application of GST/HST to Products Commonly Described as "Dietary Supplements", outlines the criteria that the CRA considers in determining whether a product is a food, beverage or ingredient for human consumption or a dietary supplement.

The terms "food" and "beverage" are not defined in the ETA. However, the Canada Revenue Agency (CRA) considers a product to be a food or beverage if an average consumer would recognize and purchase the product as such in the ordinary course of buying basic groceries. Consumers usually consume food and beverages to allay hunger or quench thirst, or for enjoyment rather than for therapeutic or preventative effects.

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 preventative 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. Rather, these products as represented as being for another purpose.

Specific criteria that GST/HST Policy Statement P-240 XXXXX considers to determine whether a product is a dietary supplement include its labelling, packaging/format, and marketing.

The labelling, packaging, and marketing indicate that the Product is a dietary supplement. The Product is identified on its label as a XXXXX, and not as a beverage. The XXXXX Web site describes XXXXX. The packaging and product name XXXXX content of the Product.

Although the Product is sold in a XXXXX format, this is merely a means of consuming the XXXXX contained therein. While the Product could be consumed to quench thirst, this is secondary to its primary purpose, which is to provide a means to consume the XXXXX that it contains. XXXXX.

As a result of the application of GST/HST Policy Statement P-240, the Product is considered to be a dietary supplement and not a beverage for GST/HST purposes and is not zero-rated under section 1 of Part III of Schedule VI. As there are no other applicable zero-rating or exempting provisions, the Product is taxable at 6% GST or 14% HST.

This letter confirms the ruling that we made, XXXXX in which we took the position that the Product is not a zero-rated beverage and is taxable at 7% GST or 15% HST.

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

2006/10/16 — RITS 82620 — Application of GST/HST to Pre-packaged Desserts