7 July 2006 GST/HST Ruling 81296 - Services by Registered Massage Therapists

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 to the Honourable Carol Skelton, Minister of National Revenue, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sales of single servings of unflavoured milk.

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

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on 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

We understand from your letter and your telephone conversation with Sherry Palmer of this office that you run a fast food restaurant where you sell single servings of white unflavoured milk. The restaurant sells all or substantially all foods and beverages that are not zero-rated (i.e., 90 per cent or more of the items that you sell, not including the milk in question, are taxable at 6% GST). The single servings of milk are the usual 250 or 500 mL cartons.

Ruling Requested

You would like to know the tax status of the single servings of unflavoured milk sold in your restaurant.

Ruling Given

Based on the facts set out above, we rule that the single servings of unflavoured milk sold in your restaurant are taxable at 6% GST.

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

The supply of basic groceries, which includes most supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated. Examples of food and beverages that are zero-rated as basic groceries under section 1 of Part III of Schedule VI include fresh, frozen, canned and vacuum sealed fruits and vegetables, breakfast cereals, most milk products, fresh meat, poultry and fish, eggs and coffee beans. However, certain categories of foodstuffs, for example, carbonated beverages, candies and confectionery, and snack foods are taxable at 6% GST or 14% HST.

Pursuant to paragraph 1(n) of Part III of Schedule VI, 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 taxable at 6% GST or 14% HST, except when prepared and prepackaged specially for consumption by babies; when sold in multiples, prepackaged by the manufacturer or producer, of single servings; or when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving. For GST/HST purposes, a single serving for beverages includes all servings under 600 mL in volume. Manufacturers' packages of two or more single servings are zero-rated, as are all servings larger than a single serving. Since this provision does not apply to unflavoured milk, such milk is usually zero-rated regardless of size or quantity of containers.

However, there are some exceptions to the above. Pursuant to subparagraph 1(q)(i) of Part III of Schedule VI, supplies of food or beverages are taxable at 6% GST or 14% HST when sold at an establishment at which all or substantially all (90% or more) of the sales of food or beverages are sales of food or beverages that are not otherwise zero-rated, except where the food or beverage is sold in a form not suitable for immediate consumption, having regard to the nature of the product, the quantity sold or its packaging.

You have described your establishment as a fast food restaurant. Fast food products typically consist of, in the majority, heated foods and beverages and sodas. Food and beverages heated for consumption are excluded from zero-rating pursuant to paragraph 1(o) of Part III of Schedule VI, while sodas would be excluded from zero-rating as carbonated beverages pursuant to paragraph 1(c) of Part III of Schedule VI. Accordingly, your restaurant is the type of eating establishment that is caught by paragraph 1(q) of Part III of Schedule VI.

Subparagraph 1(q)(i) of Part III of Schedule VI provides that a food or beverage may still be zero-rated if it is sold not for immediate consumption. A single serving carton of milk normally can be opened by hand. Fast food restaurants usually have straws available to drink their beverages at the location. Five hundred and 250 mL cartons are single servings, and a single serving is a quantity that implicitly is suitable for immediate consumption. Therefore, the single servings of unflavoured milk sold in your restaurant are subject to 6% GST.

You should also be aware that pursuant to paragraph 1(o.4) of Part III of Schedule VI, beverages dispensed (e.g., sold in a cup) at the place they are sold are subject to 6% GST, and pursuant to paragraph 1(p) of Part III of Schedule VI, all food or beverages sold through a vending machine are subject to 6% GST.

Note that when you buy single servings of unflavoured milk from a dairy or wholesaler, they would normally not be an establishment of the type described in paragraph 1(q) of Part III of Schedule VI and therefore your purchases of such milk would be zero-rated.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly 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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