19 January 2006 GST/HST Ruling 76853 - XXXXX Crisps, XXXXX Bagel Chips and Pita Chips

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 Kefir XXXXX (the Product).

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

Statement of Facts

1. The Product is a fermented milk containing active bacteria and yeasts.

2. The Product is a cultured, enzyme-rich food filled with friendly microorganisms that help balance the intestinal flora. Similar to yogurt but more nutritious and therapeutic, it supplies complete protein, essential minerals, and valuable vitamins.

3. The ingredients are: organic partly skimmed milk, organic fruit preparation (cane sugar, strawberries puree, water, natural fruit pectin, ascorbatic acid (vit.c), citric acid), and bacterial cultures.

4. The Product is sold in supermarkets and grocery stores and is generally found in the natural health food section of the store.

5. The container is similar to a yogurt container and in addition to listing the specific ingredients and storage instructions, it specifies that the product should be stirred before drinking.

6. While the Product is supplied in containers of XXXXX millilitres (ml), the nutrition facts are based on XXXXX ml.

7. The cover of the container is labelled as XXXXX.

Ruling Requested

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

Ruling Given

Based on the facts set out above, we rule that the Product is zero-rated (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 ETA, 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 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.

Subparagraph 1(n)(iii) of Part III of Schedule VI to the Act excludes from zero-rating the supply of: beverages (other than unflavoured milk) or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding, except when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving.

Under this provision, a serving of a beverage is generally considered to be a single serving when the serving is less than 600 ml. In addition to volume, the Canada Revenue Agency considers the manner in which a beverage is packaged, marketed and promoted to determine if it is a single serving.

After reviewing all the relevant material (packaging, labelling and promotional material), we concur that the Product is a beverage. Although the Product is supplied in quantities of less than 600 ml, the CRA does not consider the Product to be a single serving, because of its packaging, marketing, and promotion, as well as its properties.

That is, the container is similar to a yogurt container and the Product is not drunk from its container; it typically needs to be poured into a glass or cup. Because of the properties of the Product, such as fermented milk containing active bacteria and yeasts, which make it rich and filling, the beverage cannot be consumed by an average person in a single sitting. The Product is not promoted or labelled as a single serving.

Therefore, as the container, the labelling and the marketing of the Product are significantly different from other products found under 1(n) of Part III of Schedule VI and as the Product has properties which make it rich and filling, the CRA considers the Product supplied in containers of XXXXX ml to be more than a single serving and therefore zero-rated for GST purposes

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

2006/01/05 — RITS 76854 — Application of GST/HST to [Crispy Snack Food]