8 February 2006 GST/HST Interpretation 57853 - Importation of 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.

This is concerning your XXXXX concerning the GST/HST tax status of the following products: XXXXX Instant Breakfast, XXXXX Orange Beverage, XXXXX, XXXXX, XXXXX Lemon Flavored XXXXX Water, XXXXX Apple Beverage, XXXXX Dairy XXXXX Beverage.

Background Information

The following outlines our understanding of the facts and circumstances related to the above products under review.

1. XXXXX.

2. The above products are for people with special dietary needs. Some of the products are tube fed or for oral feeding or beverages that have been XXXXX to help individuals that have problems swallowing ^[xxix]1. There are 11 products under review.

3. These products are generally sold in pharmacies and speciality food stores. The products can also be directly purchased by the consumers over the internet. The products can be purchased without a medical prescription.

4. All of these products are for oral or tube feeding and none of the products under review are for parenteral ^[xxx]2 use.

5. XXXXX are products that fall under the meaning of "formulated liquid diet" under Division 24 of the Food and Drug Regulation, Foods For Special Dietary Use under the Canadian Food and Drugs Act.

6. Description of the Products

a) XXXXX: formulas are used by people who have digestive systems that don't work properly. They can eat but cannot get the full benefit from their food. XXXXX is a complete food product ^[xxxi]3, which contains all the carbohydrates, proteins, fats, vitamins, minerals and trace elements your body needs. XXXXX is a tube feeding for patients with gastrointestinal impairment. XXXXX, XXXXX, is XXXXX. XXXXX formula is a medical food ^[xxxii]4 – consumers should consult with their physician on the use of this product.

b) XXXXX: A XXXXX containing complete liquid formula. It is designed for persons with Type 1 or Type 2 diabetes or stress hyperglycemia and normal gastrointestinal function. It is for oral or tube feeding use.

c) XXXXX: XXXXX formula is an enteral tube feeding product which is a high-calorie, XXXXX, complete liquid formula with fiber. XXXXX formula is a medical food – consumers should consult with their physician on the use of this product.

d) XXXXX Instant Breakfast: is an ideal supplements for delicious, economical, high-quality nutrition. The product is a dry powder that is mixed with milk. This product is from the malnutrition/high calorie foods product family and is indicated for people with protein-calorie malnutrition, Anorexia, oncology, HIV/AIDS, or oral surgery.

e) XXXXX Orange Beverage: Indicated for patients requiring XXXXX drinks in the management of dysphagia. It is used for patients with conditions such as stroke, Parkinson's disease, muscular dystrophy, motor neurone disease, multiple sclerosis, or neurological disorders caused by injury or disease and malignancies of the oral cavity and throat. It is to be used under medical supervision.

f) XXXXX: XXXXX supplement is a nutritionally balanced, XXXXX liquid formula for individuals with maintenance protein and calorie requirements. The aseptic packaging process helps enhance the flavor and color, improving patient acceptance. XXXXX supplement is a medical food - consumers should consult with their physician on the use of this product.

g) XXXXX: XXXXX is a high-calorie, nutritionally balanced, XXXXX liquid formula for oral or tube feeding. This product provides a concentrated source of calories in a limited volume for individuals with XXXXX requirements. XXXXX is a medical food – consumers should consult with their physician on the use of this product.

h) XXXXX: XXXXX supplement provides maximum nutrition and delicious taste. It is an ideal choice for XXXXX offers versatile serving options. XXXXX supplement is a medical food - consumers should consult with their physician on the use of this product.

i) Lemon Flavoured XXXXX Water: This is also a product for people who have difficulty swallowing foods and liquids. It is naturally refreshing, ready-to-serve XXXXX water. It offers true water taste with a twist of lemon.

j) XXXXX Apple Beverage: This is a delicious, ready-to-serve XXXXX juice with added calcium, zinc and vitamin C. It is available in a variety of packages to meet your needs. This product is used for dietary management for individuals with dysphagia.

k) XXXXX Dairy XXXXX Beverage: This product is creamy and smooth, XXXXX, 2% reduced-fat milk in XXXXX flavors. It is available in convenient single-serve XXXXX packages. This product is used for dietary management for individuals with dysphagia.

Issue

You have asked us to review the above mentioned products and determine their tax status for GST/HST purposes.

Our Response

Section 1 of Part III of Schedule VI to the Excise Tax Act (the Act) zero-rates supplies of food or beverages for human consumption ("basic groceries") and sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, unless one of the exceptions set out in paragraphs 1(a) through 1(r) applies.

The terms "food" and "beverage" are not defined in the Act. However, the 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 thirst or for enjoyment rather than for therapeutic or preventative effects ^[xxxiii]5.

The CRA's approach is based on the views of an "average consumer". As a result, individual preferences for, or dislikes of, certain products would not alter the general perception that a product was, or was not, a food or beverage. Similarly, products that meet the 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 by the average consumer as food or beverages. These types of products are commonly referred to as dietary supplements.

The CRA's approach would not preclude a product specially processed or formulated to meet the dietary requirements of a person in whom a physical or physiological condition exists as a result of a disease, disorder or injury or whom a particular effect is to be obtained by a controlled intake of food. This would cover food products for special dietary or medical uses such as formulated liquid diets provided these products are intended to allay hunger or thirst or for enjoyment through the digestive system rather than for therapeutic effects.

Although these products are different from what an ordinary consumer would view as food, the main purpose is to provide nutrition and nourishment and/or to quench thirst for people with a medical condition.

Policy Statement P-240, Products Commonly Described As Dietary Supplements, addresses the issue of whether products commonly described as "dietary supplements" are taxable at 7% GST (or 15% HST as applicable) or at 0% (zero-rated). More specifically, this policy statement considers whether such products are zero-rated pursuant to section 1 of Part III, Basic Groceries, of Schedule VI to the Act as food or beverages for human consumption or as an ingredient to be mixed with or used in the preparation of such food or beverages. Under this policy, meal replacement and nutritional supplement products that meet the criteria set out in the Food and Drugs Act are not covered by this policy and such products would generally be zero-rated pursuant to section 1, Part III, Schedule VI to the Act.

This policy does not address products that are presently reviewed. Although these products are for people with special dietary needs, they do not treat or mitigate a medical condition but rather serve as nourishment through the digestive system for an individual that has a medical condition either caused by an illness, an operation or an accident.

The Food and Drug Act provides that "food for special dietary use" means food that has been specially processed or formulated to meet the particular requirements of a person in whom a physical or physiological condition exists as a result of a disease, disorder or injury, or for whom a particular effect, including but not limited to weight loss, is to be obtained by a controlled intake of foods. This legislation also provides that "formulated liquid diet" means a food that is sold for consumption in liquid form, and is sold or represented as a nutritionally complete diet for oral or tube feeding of a person. Therefore, we are of the view that the products previously referred to in paragraphs 6a), b), c), f), g) and h) are considered food and are zero-rated for GST/HST purposes, as none of the exceptions of Part III apply.

The products previously referred to in paragraphs 6e), i), j) and k) are beverages ^[xxxiv]6 that have been XXXXX for people who have difficulties swallowing which are either milk, water or fruit beverages. Although these beverages are for people with special needs, they are similar to ordinary drinks found in the supermarkets (starch has been added to XXXXX the beverage). Therefore these types of products are food and would be zero-rated unless one of the exceptions of Part III of Schedule VI applies ^[xxxv]7. The instant breakfast product referred to in paragraph 6d) is a food that is represented as a supplement to a diet that may be inadequate in energy and essential nutrients and therefore would be zero-rated as a nutritional supplement.

In conclusion, we have provided below tables containing the name of the products, their characteristics and their tax status.

If you require clarification with respect to any of the issues discussed in this memo, please call me directly at (613) 952-9585.

Table 1: Products That Meet the Definition of "Formulated Liquid Diet"

We are of the view that these products are all zero-rated as they are formulated liquid diet as described in Division 24 of the Food and Drug Regulations and that none of the exceptions of Part III of Schedule VI of the Act apply.

Table 2: Beverages That are Similar to Regular Beverages But Have Been XXXXX and Would Follow the Regular Rules of Part III of Schedule VI to the Act:

These products will be zero-rated provided none of the exceptions of Part III of Schedule VI of the Act apply. The possible exceptions that may apply to the particular product are referred to in the tax status column of this table.

Table 3: XXXXX Instant Breakfast:

We are of the view that the product XXXXX Instant Breakfast meets the criteria set out in the Food and Drugs Act as a nutritional supplement and therefore is zero-rated.

2006/02/07 — RITS 59954 — [Application of the GST/HST to the Supply of Various Camp Programs to Children and Youth]