1 October 2007 GST/HST Ruling 94920 - XXXXX Fruit Beverage 6 x XXXXX mL 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 fax of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX XXXXX(the Product).

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

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is sold in multiples of 6 x XXXXXmL containers pre-packaged by the manufacturer.

2. The front Product label makes the following statements XXXXX.

3. The back Product label states XXXXX

4. The Product ingredients include modified milk ingredients and artificial flavours.

5. The Web site for XXXXX the maker of the Product, suggests the Product provides nutrition for persons who: XXXXX.

6. The Web site for XXXXX also describes the Product XXXXX as XXXXX XXXXX.

7. The Product is not a meal replacement or nutritional supplement as set out in the Food and Drug Act and its Regulations.

Ruling Requested

You would like to know how the GST/HST applies to supplies of the Product (vanilla flavour).

Ruling Given

Based on the facts set out above, we rule that supplies of the Product (vanilla flavour) are zero-rated under 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 (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.

Paragraph 2 of the GST/HST Memoranda Series 4.3, Basic Groceries, provides guidelines on what the Canada Revenue Agency (CRA) considers to be a "food" or "beverage" that consumers usually consume to allay hunger or thirst or for enjoyment rather than for therapeutic or preventative effects. Further, paragraph 148 of this publication provides information regarding products that are considered dietary supplements that are consumed for their therapeutic or preventative effects and are not considered basic groceries.

Meal replacements and nutritional supplements that, as discussed in paragraph 160 of this publication, meet the criteria set out in the Food and Drug Act and its Regulations, are not considered dietary supplements and such products are generally zero-rated under section 1 of Part III of Schedule VI.

Food products that are not meal replacements or nutritional supplements as set out in the Food and Drug Act and its Regulations, are not dietary supplements and are a specialized form of normal food designed for people with particular intolerances or allergies, are treated as normal food for GST/HST purposes. As such, these food products may be zero-rated under section 1 of Part III of Schedule VI, unless one of the exceptions in paragraphs (a) to (r) of that section applies.

In determining the tax status of a particular product, it is the composition of each particular product in a product line that must be considered to determine if each particular product is a meal replacement, nutritional supplement, dietary supplement or normal food.

The Product in this case is not a meal replacement, nutritional supplement or dietary supplement. It is a beverage and as such, any exceptions applicable to beverages in paragraphs 1(a) to (r) of Part III of Schedule VI must be considered.

In particular, paragraph 1(n) of Part III of Schedule VI provides that beverages are excluded from zero-rating except when prepared and prepackaged specially for consumption by babies; when sold in multiples, prepackaged by the manufacturer or producer, of single servings; or when cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving.

The Product is prepackaged by the manufacturer in 6 x XXXXX mL containers. Supplies of the Product (vanilla flavour) are zero-rated under section 1 of Part III of Schedule VI.

XXXXX in other flavours

The Web site XXXXX states that XXXXX is also available in chocolate and strawberry flavours. Supplies of chocolate flavoured XXXXX when prepackaged by the manufacturer in 6 x XXXXX mL containers are zero-rated under section 1 of Part III of Schedule VI.

Supplies of strawberry flavoured XXXXX

Supplies of XXXXX that are fruit flavoured are also subject to the exception in paragraph 1(d) of Part III of Schedule VI. This paragraph excludes from zero-rating, the supply of non-carbonated fruit juice or fruit-flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of

(i) a natural fruit juice or combination of natural fruit juices, or

(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state,

or goods that, when added to water, produce a beverage, noted above.

As discussed in paragraph 20 of GST/HST Memoranda Series 4.3, a product will qualify as a milk-based beverage if it has milk as a main ingredient. The term milk refers to whole, skimmed and partly skimmed milk. Where XXXXX contains modified milk ingredients, these are not considered "milk" for ETA purposes and as such, XXXXX is not a milk-based beverage.

Therefore, where XXXXX is a fruit flavoured beverage with less than 25% natural fruit juice, it will be excluded from zero-rating under paragraph 1(d) of Part III of Schedule VI and will be taxable at 6% GST or 14% HST as applicable.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 306-975-6214.

Yours truly,

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

2007/07/31 — RITS 95599 — [Application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and January 26, 2007 Proposed Amendments Relating to Qualified Institutions]