10 December 2007 GST/HST Ruling 97535 - XXXXX Crackers

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 fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the application of the GST/HST to products sold by your client XXXXX.

XXXXX.

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 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 (Product A) consists of whole XXXXX seeds and is sold in XXXXX gram XXXXX plastic bags.

2. Product A can be sprinkled on food, and used as an ingredient in recipes.

3. Product A's packaging states:

•   XXXXX

4. XXXXX (Product B) consists of whole XXXXX seeds and is sold in plastic bags containing XXXXX grams packages for a total of XXXXX grams.

5. Product B can be sprinkled on food, and used as an ingredient in recipes.

6. Product B's packing states:

•   XXXXX

7. XXXXX (Product C) consists of ground XXXXX seeds and is sold in XXXXX gram XXXXX plastic bags.

8. Product C can be sprinkled on food, and used as an ingredient in recipes.

9. Product C's packaging states:

•   XXXXX

10. XXXXX (Product D) is sold in a clear plastic tray containing XXXXX grams of the product.

11. Product D comes in XXXXX flavours: XXXXX.

12. Product D is in the form of wafers (XXXXX) rectangular in shape approximately XXXXX thick.

13. "Product D's packaging states:

•   "XXXXX".

Ruling Requested

You would like to know how the GST/HST applies to supplies of Products A, B, C, and D.

Ruling Given

Based on the facts set out above, we rule that supplies of Products A, B, C, and D are zero-rated pursuant to section 1 of Part III of Schedule VI.

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 (14% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated, pursuant to subsection 165(3). 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.

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.

The terms "food" and "beverage" are not defined in the ETA. However, the Canada Revenue Agency (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 quench thirst, or for enjoyment rather than for therapeutic or preventative effects.

Generally, it is the view of the CRA that an average consumer would consider a product to be an ingredient if the product added to flavour, texture or appearance of the final product; that is, if it was integral to the final product. Moreover, in order to be regarded as an ingredient to a food or beverage, the final product, in and of itself, must be a food or beverage.

GST/HST Memoranda Series 4.3, Basic Groceries, paragraphs 148 through 159, and GST/HST Info Sheet GI-001, Products Commonly Described as "Dietary Supplements", outline the criteria that the CRA considers in determining whether a product is a food, beverage or ingredient for human consumption or a dietary supplement. These criteria consider the labelling, packaging, and marketing of the product.

A number of the criteria outlined in GST/HST Memoranda Series 4.3, Basic Groceries indicate XXXXX products are not dietary supplements for GST/HST purposes. These include:

•   The labelling, packaging, and marketing do not indicate that Products A, B, C, and D are dietary supplements.

•   XXXXX products do not have a Drug Identification Number (DIN), a Homeopathic Medicine Number (DIN-HM), or a Natural Product Number (NPN).

•   No active or medicinal ingredients are listed.

•   The XXXXX product packaging contains limited general health claims (although there are more extensive claims on the Website).

•   XXXXX products are sold in grocery stores as well as health food stores.

•   XXXXX products are in a form commonly associated with food, beverages or ingredients.

Based on the criteria in GST/HST Memoranda Series 4.3, Basic Groceries, paragraphs 148 through 159, and GST/HST Info Sheet GI-001, Products Commonly Described as "Dietary Supplements", XXXXX products are not dietary supplements for GST/HST purposes. For GST/HST purposes we consider Products A, B, and C to be ingredients and as none of the exclusions included in paragraphs (a) to (r) of section 1 of Part III of Schedule VI apply, supplies of Products A, B, and C are zero-rated.

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."

Product D is similar to flatbreads or crackers and has different properties than those found in products enumerated under paragraph 1(f). Further, the packaging and marketing indicate that Product D is not similar to products enumerated under paragraph 1(f). Therefore, the exclusion in paragraph 1(f) of Part III of Schedule VI does not apply to Product D. As none of the exclusions included in paragraphs (a) to (r) of section 1 of Part III of Schedule VI apply, supplies of Product D are zero-rated.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9585. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

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

2007/12/05 — RITS 97229 — Foreign Convention and Tour Incentive Program