23 August 2006 GST/HST Ruling 82134 - Application of GST/HST to 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 loosely in a XXXXX-gram bag.

2. The Product is thinner than XXXXX and is irregular in shape.

3. The ingredients of the Product are: XXXXX.

4. The labelling on the bag describes the Product as XXXXX. The labelling on the original variety indicated that it has XXXXX% less fat than XXXXX.

5. Generally, the Product is placed in stores in the same location as crackers.

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 taxable at 6% or 14% in a participating province, 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.

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. Paragraph 1(f) excludes 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) from zero-rating.

GST/HST Policy Statement P-241, Meaning of "Other Similar Snack Food" under Paragraph 1(f) of Part III of Schedule VI to the Excise Tax Act (ETA), 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 in question (ingredients, flavours, texture, cooking process and appearance), its labelling, its packaging, and its marketing.

The properties of the Product that indicate that it fits within paragraph 1(f) of Part III of Schedule VI include the flavours available, the texture of the Product XXXXX and its appearance XXXXX. The Product labelling includes the word "chips" in its name and elsewhere, as well as the word "crunch". The Product compares itself to XXXXX. The Product is packaged loosely in a bag.

Although the main ingredients of the Product do not include potatoes, corn, or corn meal, this does not preclude the Product from falling within paragraph 1(f) based on the application of the remaining factors. As well, although we consider product placement as a relevant consideration, it alone is not considered a determinative factor. Finally, fat content is not a factor in the determination of whether a particular product falls under paragraph 1(f).

Based on the factors as outlined in Policy Statement P-241, supplies of the Product are excluded from zero-rating under paragraph 1(f) 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 (613) 952-9585.

Yours truly,

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

2006/07/13 — RITS 55690 — Application of GST/HST to [Beverage] Products