5 January 2006 GST/HST Ruling 76854 - XXXXX Kefir

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 supplies of XXXXX (the Product).

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

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is packaged loosely in a XXXXX-gram (g) bag.

2. The Product is available in XXXXX flavours: XXXXX.

3. The Product is XXXXX.

4. The ingredients of the XXXXX flavour are: XXXXX.

5. The labelling on the bag describes the Product as follows: XXXXX.

6. You indicate that the retail price for a XXXXX-g bag of the Product is usually $XXXXX to $XXXXX, depending on the geographic area.

7. You believe that many, and perhaps most, grocers place the Product in the same aisle as crackers.

Ruling Requested

You would like to know the GST/HST status of supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are taxable at 7%, or 15% in a participating province pursuant to section 165 of the ETA.

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

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 7% on the value of the consideration for the supply, or 15% in a participating province, unless the supply is zero-rated, pursuant to section 165 of the ETA. The tax rate in respect of a zero-rated supply is 0%, where a zero-rated supply is a supply that is included in Schedule VI to the ETA.

Under Part III of Schedule VI to the ETA, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI to the ETA 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), other than supplies included in paragraphs (a) to (r) of that section. Paragraph 1(f) excludes supplies of 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) from zero-rating.

GST/HST Policy Statement P-241, Meaning of "Other Similar Snack Food" under Paragraph 1(f) of Part III of Schedule VI to the Excise Tax Act (ETA), outlines factors that may be used to determine if a particular product is similar to a chip, crisp, puff, curl or stick as described under paragraph 1(f) of Part III of Schedule VI.

These factors include the properties of the product in question (ingredients, flavours, texture, cooking process and appearance), its labelling, its packaging, and its marketing.

The properties of the Product that indicate that it fits within paragraph 1(f) of Part III of Schedule VI to the ETA include the flavours available, the texture of the Product (crispy) and its appearance (small, thin slices). The labelling of the Product includes the word XXXXX in its name and elsewhere, as well as the word XXXXX. The Product is packaged loosely in a bag.

Although the main ingredients of the Product do not include potatoes, corn, or corn meal, this would not preclude the Product from falling within paragraph 1(f) based on the application of the remaining factors. As well, although we consider product placement as a relevant consideration, it alone is not considered a determinative factor.

Based on the factors in Policy Statement P-241, supplies of the Product are excluded from zero-rating under paragraph 1(f) of Part III of Schedule VI to the ETA.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-8253.

Yours truly,

Jacqueline Russell
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/01/04 — RITS 76855 — Application of GST/HST to Herbal Tea and Energy Tea