10 March 2006 GST/HST Ruling 76614 - 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 letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to hemp protein powder and hemp seed oil.

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

Statement of Facts

You have asked us to review the following products:

Hemp Protein Powder (Product A)

1. Product A has a gourmet nutty flavour. It is used to create protein shakes, and is added to juices, smoothies and green drinks.

2. Product A is a whole food protein powder. It is rich in complete protein XXXXX, XXXXX and healthy dietary fibre. It is gluten free.

3. Product A is XXXXX hemp seed that is grown sustainably without the use of herbicides or pesticides.

4. The suggested use is XXXXX taken daily for life. Refrigerate after opening. XXXXX.

5. Ingredients are XXXXX Hemp Protein Powder. Contains No Additives or preservatives.

Hemp seed oil (Product B)

1. Product B is a rich source of the XXXXX. Hemp Seed Oil offers a good balance of XXXXX, suitable for life long consumption.

2. Product B has a XXXXX color and a gourmet nutty flavor, a tasteful compliment to a variety of foods. It can be added to juices, smoothies, soups and sauces to create a rich creamy texture. Hemp Seed Oil is an excellent base for any salad dressing. You can substitute Hemp Seed Oil for other oils in recipes that are not heated above XXXXX.

3. Product B is cold pressed from XXXXX hemp seed that is grown sustainably without the use of herbicides or pesticides. Contains no Genetically Modified Organisms (GMOs).

4. Ingredients are XXXXX Hemp Seed Oil. Contains no additives or preservatives.

5. The suggested use is XXXXX, taken daily for life.

Ruling Requested

You would like to know the GST/HST tax status of Product A and Product B.

Ruling Given

Based on the facts set out above, we rule that Product A is a taxable supply at 7%, or (15 % as applicable) pursuant to section 165 the Act and Product B is a zero-rated supply (taxable at 0%) pursuant to subsection 165(3) and section 1 of Part III of Schedule VI to the Excise Tax Act (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

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% GST or 15% HST, as applicable. However, "zero-rated" supplies of goods and services are subject to tax at 0%. A zero-rated supply is any supply included in Schedule VI to the Act.

Section 1 of Part III of Schedule VI to the Act zero-rates supplies of food or 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) unless one of the exclusions set out in paragraphs 1(a) through 1(r) applies.

The terms "food" and "beverage" are not defined in the Act. However, the position of the Canada Revenue Agency (CRA) is that these terms are to be construed according to their ordinary meaning. That is, a food or a beverage is a good that an average consumer would recognize and purchase as such in the ordinary course of buying basic groceries. Products that meet special dietary needs of certain segments of the population such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed as a food or a beverage.

Consumers usually consume beverages for enjoyment or to quench thirst. Therefore, the CRA generally considers 'beverages' as goods consumed to sustain or maintain life, to allay thirst, or for enjoyment rather than for therapeutic or preventative effects or to achieve specific beneficial effects related to performance or physique.

Generally, it is the view of the CRA that an average consumer would consider a product to be an ingredient if the product added to flavour, texture or appearance of the final product; that is, if it was integral to the final product. Moreover, in order to be regarded as an ingredient to a food or beverage, the final product, in and of itself, must be considered to be a food or beverage by the average consumer.

Additionally, a product that is marketed for its beneficial effects, and that is added to a food or beverage simply as a means of consuming it, would not be considered as an ingredient to a food or beverage simply because it is ingested in this manner.

Among other factors, the CRA will consider labelling, packaging and marketing to determine whether a product would be considered a "food", "beverage", or "ingredient".

The main ingredient of Product A is a hemp protein powder. Products that are labeled 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 such as therapeutic or preventative effects, or claim to enhance performance or physique are not considered to be a food or beverage. We have noticed on the XXXXX web site that Product A is generally taken by athletes or people that need to supplement their diets with protein because they are vegetarian or vegan.

The CRA considers that Product A is not a food, beverage or an ingredient and is therefore not within the preamble of Section 1 of Part III of Schedule VI to the Act. Products A is taxable at 7% GST or 15% HST, as applicable, pursuant to section 165 of the Act.

The CRA considers Products B to be an ingredient that is added to other foods or ingredients and adds to the flavour, texture or appearance of the final product, that is, it is integrated to the final product. As such, it is within the preamble to Section 1 of Part III of Schedule VI to the Act and 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,

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

2006/03/16 — RITS 78140 — Importation of [Food Items]