9 February 2007 GST/HST Interpretation 79000 - Application of sections 170 and 173 of the Excise Tax Act

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 supplies of emu fat (Product A), rendered emu fat (Product B), and emu oil for topical purposes (Product C) involving XXXXX (the Supplier).

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. Product A is a by-product of the processing of emu birds for their meat and is obtained by removing the fat from the carcasses of emus.

2. Product A is not suitable for human consumption.

3. The Supplier purchases Product A from XXXXX. It comes XXXXX weighing approximately XXXXX.

4. The Supplier renders Product A to separate the fat from waste products. Although the resulting Product B has been processed to some degree, it is still not suitable for human consumption.

5. XXXXX, the Supplier purchased Product B. It was supplied in XXXXX.

6. The Supplier sends Product B to a XXXXX plant that filters, refines and purifies it into Product C.

7. Sufficiently refined emu oil is suitable for both human consumption and topical applications; however, the Supplier sells Product C only for topical applications.

8. The Supplier sells Product C in XXXXX quantities. Labels on the containers state that it is XXXXX.

9. The by-products of the processing of emus for their meat, including raw emu fat, rendered emu fat and emu oil, are not ordinarily used as feed, or as ingredients in feed for farm livestock, fish or poultry ordinarily raised or kept to produce, or to be used as food for human consumption or to produce wool, or as feed for rabbits, ostriches, rheas, emus or bees.

Rulings Requested

You would like to know how the GST/HST applies to:

1. Supplies of Product A and Product B to the Supplier.

2. Supplies of Product C by the Supplier.

Rulings Given

Based on the facts set out above, we rule that:

1. Supplies of Product A and Product B to the Supplier are at taxable at 6% GST or 14% HST pursuant to section 165.

2. Supplies of Product C by the Supplier are at taxable at 6% GST or 14% HST pursuant to section 165.

Please note that this letter does not address the GST/HST status of emu oil that is supplied for human consumption.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by these rulings 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 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.

Product A and Product B

Animal Feed

Under Part IV of Schedule VI, supplies of certain agricultural property are zero-rated and section 10 of Part IV of Schedule VI, zero-rates supplies of prescribed property. Subsection 1(3) of the Schedule (Section 2) to the Agriculture and Fishing Property (GST/HST) Regulations describes property that, when supplied by way of sale is prescribed property for the purposes of section 10 of Part IV of Schedule VI. It states that the following is prescribed property:

"By-products of the food processing industry and plant or animal products, when sold in bulk quantities of at least 20 kg (44 lbs) or in bags that contain at least 20 kg, that are ordinarily used as feed, or as ingredients in feed, for farm livestock, fish or poultry described in subparagraph 1(2)(c)(i) or for rabbits, ostriches, rheas, emus or bees."

Subparagraph 1(2)(c)(i) refers to feed that:

"is designed for a single species or class of farm livestock, fish or poultry ordinarily raised or kept to produce, or to be used as, food for human consumption or to produce wool,"

Our research indicates that Product A or products derived from Product A are not ordinarily used as feed or as ingredients in feed for farm livestock, fish or poultry described in subparagraph 1(2)(c)(i) or for rabbits, ostriches, rheas, emus or bees in Canada. Furthermore, such products are not approved as ingredients for feed in Canada. As a result, the requirements in subsection 1(3) of the Agriculture and Fishing Property (GST/HST) Regulations are not met and that provision does not apply to zero-rate supplies of Product A and Product B.

Basic Groceries

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.

Product A and Product B generally have impurities and contaminants at levels too high to be suitable for human consumption. Information obtained from producers and refiners of emu oil products confirm this. In addition, you have stated that Product A or Product B is not suitable for human consumption or even topical uses and you do not sell it to consumers.

The Supplier purchases Product A and Product B XXXXX and there are no indications on the product packaging that Product A or Product B is intended or is suitable for human consumption. Our research has not found any indication that emu fat or rendered emu fat is used as food or in the preparation of food. We understand that the ordinary use of raw emu fat and rendered emu fat is for further processing and refining in order to bring it to a sellable state as refined emu oil. As a result, section 1 of Part III of Schedule VI does not apply to zero-rate supplies of Product A and Product B.

Product C

The typical uses of refined emu oil are for external application as ointments and creams for purposes such as anti wrinkle, sun screen/sunburn, moisturizer, soap, lip balm, and pain/arthritis cream. Sometimes refined emu oil is combined with other ingredients (glucosamine, Aloe Vera, Menthol, Shea Butter, Calendula Oil, and Tea Tree Oil). There is no provision in the ETA to zero-rate or exempt supplies of Product C by the Supplier. Therefore, supplies of Product C by the Supplier are taxable at 6% GST or 14% HST.

The Canada Revenu Agency is aware that there are products available containing emu oil which are intended for human consumption. As noted in the ruling above, this letter does not address the GST/HST status of emu oil that is supplied for human consumption.

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,

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

2007/02/26 — RITS 79576 — Meaning of "Dietetic Service" for Purposes of the Excise Tax Act