3 January 2006 GST/HST Ruling 76851 - 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 the tax status of XXXXX Crisps (Product A), XXXXX Bagel Chips (Product B) and XXXXX Pita Chips (Product C).

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

Statement of Facts

Product A

1. Product A ingredients are: unbleached enriched wheat flour, palm oil, sesame seeds, salt, less than XXXXX% of the following: liquid brown sugar, malted barley flour, yeast, partially hydrogenated soybean oil, dough conditioner, vinegar, soy lecithin, beta carotene, artificial flavour, and citric acid.

2. Product A is labelled as XXXXX Crisps.

3. Product A comes in the following flavours: XXXXX.

4. Product A is sold in a coloured paper bag of XXXXX grams, usually in the bakery section of the supermarket.

5. The shape of Product A is round, thick and approximately XXXXX cm in diameter.

6. Product A is marketed as: XXXXX.

Product B

1. Product B ingredients are: unbleached enriched wheat flour, partially hydrogenated soybean oil, less than XXXXX% of the following: malted barley flour, liquid brown sugar, distilled vinegar, salt, yeast, enzyme active soy flour, ascorbic acid, beta carotene, and artificial flavour.

2. Product B is labelled as XXXXX Bagel Chips.

3. Product B comes in the following flavours: XXXXX.

4. Product B is sold in a bag of XXXXX grams.

5. The shape of Product B is round and approximately XXXXX cm in diameter.

6. Product B is marketed as: XXXXX.

Product C

1. Product C ingredients are: unbleached enriched wheat flour, palm oil, salt, garlic, less than 2% of the following: liquid sugar, partially hydrogenated soybean oil, yeast, vinegar, salt, yeast, beta carotene, artificial flavour, and citric acid.

2. Product C is labelled as Pita Chips.

3. Product C comes in the following flavours: XXXXX.

4. Product C is sold in a coloured paper bag of XXXXX grams, usually in the bakery section of the supermarket.

[5]. The shape of Product C comes from whole pita bread that is cut into strips. Some pieces are bigger than others.

[6]. Product C is marketed as: XXXXX.

Ruling Requested

What is the application of the GST/HST to supplies of Products A, B and C?

Ruling Given

Based on the facts set out above, we rule that Product A and Product C are zero-rated supplies (taxable at 0%) pursuant to subsection 165(3) and section 1 of Part III of Schedule VI to the Excise Tax Act (the "Act".). Products B is a taxable supply at 7%, or (15 % as applicable) pursuant to section 165 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 ETA, 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% (or 15% where the supplies are made in one of the provinces participating in the HST). 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 Excise Tax Act ("the Act").

Section 1 of Part III of Schedule VI to 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.

In accordance with paragraph 1(f) of Part III of Schedule VI of the Act, the following products are taxable at 7% (or 15%):

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".

To determine whether the product is similar to snack foods described under paragraph 1(f), we consider the following factors: properties (ingredients, flavours, texture, cooking process, size and shape), labelling, packaging and marketing.

The above facts demonstrate that Product A and C are similar to crackers and have different properties than those found in products enumerated under paragraph 1(f). Furthermore, the packaging and marketing, indicates that Product A and C are not similar to those products enumerated under 1(f).

Product B is considered to be a "similar snack food" for purposes of paragraph 1(f) of Part III of Schedule VI based on it properties. Product B is packaged and promoted as a snack food similar to snack foods enumerated in paragraph 1(f). Also, the appearance (small, thin slice) and the texture (crispy) are similar to those products enumerated under paragraph 1(f). Although we consider placement of a product in store aisles as a relevant consideration, it alone is not considered a determinative factor. Furthermore, the CRA considers that there are enough distinctions between Product A and Product B to arrive at different tax treatment for these two products. That is, the properties in terms of size and shape of Product B are different from Product A. The size and shape of Product B gives this product an appearance that is more similar to chips than Product A. Furthermore the package in which Product B is supplied is different from the package for Product A. The bag for Product B is similar to a chip bag.

It should be noted that no one factor is determinative of the tax status of a product and changes in the labelling, packaging and/or marketing would not necessarily result in a different tax status. That is, all factors must be considered in determining whether a product falls within paragraph 1(f).

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

2006/01/19 — RITS 76853 — XXXXX Kefir