10 December 2007 GST/HST Ruling 98192 - XXXXX Snack Mix

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 supply of XXXXX Crackers.

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

Effective January 1, 2008, the rate of the GST will be reduced from 6% to 5% and the rate of the HST from 14% to 13%. The new rates will apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules will apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, Proposed GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX in the line of products known as XXXXX. This product line has products sold in boxes of XXXXX.

2. The subject of this ruling request is XXXXX (the Product).

3. The Product's ingredients include: XXXXX.

4. The proposed Product labelling includes the following words or phrases: XXXXX. The Product is pictured on the package as thin, small XXXXX shaped pieces.

5. The Product's ingredients are very similar to the ingredients for XXXXX.

6. The picture of the Product on the proposed labelling (small thin pieces) is XXXXX. The Product tastes very similar to XXXXX and its crispy texture is very similar to that of XXXXX.

7. The Product will be packaged in a box containing XXXXX.

8. XXXXX believes that this Product is substantially similar to the XXXXX Therefore XXXXX believes the Product should be zero-rated.

Ruling Requested

You have requested that we confirm the tax status of the Product.

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are taxable at 6% GST (or 14% HST as applicable) pursuant to section 165.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are 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 6% on the value of the consideration for the supply (or 14% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated. Zero-rated supplies are included in Schedule VI. The tax rate in respect of a zero-rated supply is 0%.

Under Part III of Schedule VI, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI, zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.

In particular, paragraph 1(f) of Part III of Schedule VI excludes from zero-rating the following:

"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."

As discussed in Paragraphs 56 to 58 of GST/HST Memoranda Series, Basic Groceries and also in GST/HST Info Sheet GI-021, Snack Foods, to determine whether a product is similar to snack foods described under paragraph 1(f), we consider the following factors: properties of the product (ingredients, flavours, texture, cooking process and appearance), labelling, packaging and marketing. No one factor should be relied upon to make a determination of the product's tax status. Further, a change in labelling, packaging and/or marketing would not necessarily result in a different tax status.

The Product in this case is considered to be a "similar snack food" for purposes of paragraph 1(f) of Part III of Schedule VI. The Product's ingredients, texture (crispy) and appearance (small, thin pieces) are similar to products included in paragraph 1(f). The properties of the Product are also very similar to XXXXX which have been determined to be a snack food within paragraph 1(f) and excluded from zero-rating. As such, the Product is excluded from section 1 of Part III of Schedule VI and is therefore, a taxable supply subject to the GST at 6% or HST at 14% (as applicable).

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at XXXXX.

Yours truly,

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

2007/12/10 — RITS 98191 — XXXXX Crackers