28 April 2006 GST/HST Interpretation 77835 - Application of GST/HST to Imported Goods

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.

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

Statement of Facts

We understand that you are selling XXXXX. The bags are XXXXX. There is XXXXX.

The XXXXX (Product A) and XXXXX (Product B) contain only apples. XXXXX (Product C) and XXXXX (Product D) contain apples and cinnamon. XXXXX (Product E) contain apples and XXXXX. All products are dehydrated and are certified organic.

Ruling Requested

You would like to know the application of the GST/HST to the supply of the Products.

Ruling Given

Based on the facts set out above, we rule that Product A and Product B are zero-rated supplies (taxable at 0%) pursuant to subsection 165(3) and section 1 of Part III of Schedule VI to the Act. Products C, D, and E are taxable supplies at 7%, or (15% as applicable) pursuant to section 165 of the Act.

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 Act, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Section 1 of Part III of Schedule VI to the Act states that food or beverages (including ingredients) are zero-rated unless the product falls within one of the exceptions in paragraphs (a) to (r). Generally, a product that is represented (i.e., labelled and marketed) solely for use as an ingredient would not fall within the exceptions as the product would not fall within the meaning of certain words and phrases included in the exceptions. However, where a product can be purchased as both an ingredient and a snack food, that product may fall within the exceptions if other requirements included in the paragraph are met.

Paragraph 1(l) of Part III of Schedule VI to the Act excludes supplies of "fruit bars, rolls or drops or similar fruit-based snack foods" from zero-rating. It is the view of the Canada Revenue Agency (the CRA) that a good that consists of fruit and at least one other ingredient (such as fruit flavouring), and that can be purchased as a snack, falls within paragraph 1(l) to the Act.

In this instance, the products can be packaged directly by consumers in small, snack- sized portions. Although some of your products can be used as an ingredient in other foods, they can also be eaten as a snack. As Products C, D, and E have flavours added to them (XXXXX), they can be characterized as a fruit-based snack and are excluded from zero-rating pursuant to paragraph 1(l) of Part III of Schedule VI to the Act. Furthermore it is the CRA's opinion that if the sweetened dried fruit has additional ingredients such as sugar or flavour and can be sold for use as a snack and as an ingredient, the product is taxable by virtue of section 165 and paragraph 1(l) of Part III of Schedule VI to the Act. The same is also true for a product that is sold in bulk for use as a snack and as an ingredient. That is, the product is taxable by virtue of section 165 and paragraph 1(l) of Part III of Schedule VI to the Act.

I understand that you also have questions concerning GST/HST Registration. For your information, I am including the GST/HST Memorandum Series, 2.1 Required Registration, 2.2 Small Suppliers and 2.3 Voluntary Registration. In general, Subsection 240(1) of the Act sets out the rules for GST registration. All persons who make taxable supplies in the course of a commercial activity in Canada (other than "small suppliers", persons whose only commercial activity is making supplies of real property not in the course of a business, or non-resident persons who do not carry on business in Canada) are required to register for the GST.

Under subsection 148(1) of the Act, a person is a "small supplier" if its total world wide revenues from taxable supplies (other than supplies of financial services and sales of capital property) for its previous four calendar quarters, or for any particular quarter, are $30,000 or less. Small suppliers are excluded from the requirement to register for GST.

In the case of a person who is required to apply to be registered under subsection 240(1), the person is considered a "registrant" under the Act whether or not the person actually registers. As a registrant, the person is subject to the requirements and entitlements under the Act. At the time the person applies to be registered, the person's effective date of registration will be the day that the person first makes a taxable supply in Canada otherwise than as a small supplier. Therefore, in the case of mandatory registration, the person's effective date of registration will correspond to the date from which the person became a "registrant" under the Act.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9585 or Costa Dimitrakopoulos at (613) 954-4397.

Yours truly,

Gabrielle Nadeau
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/05/25 — RITS 80417 — 2006 Budget Proposal of Rate Reduction for GST