7 March 2008 GST/HST Ruling 102896 - XXXXX Beverage 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 letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX Beverage XXXXX (the Product).

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 has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates 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 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, 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. The Product is sold in corrugated cartons that are XXXXX litre in volume.

2. The Product's ingredients are: XXXXX.

3. The nutrition facts table on the packaging of the container indicates that a XXXXX mL serving of the Product contains the following:

Amount % Daily Intake

XXXXX XXXXX

4. The Product is lactose and cholesterol free.

5. The Product contains XXXXX% natural fruit juice by volume.

6. The packaging indicates that the Product is XXXXX.

Ruling Requested

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

Ruling Given

Based on the facts set out above, we rule that the supply of the Product is taxable at 5% GST or 13% HST, where applicable, pursuant to section 165 XXXXX.

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 5% on the value of the consideration for the supply (or 13% 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.

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.

Paragraph 1(d) of Part III of Schedule VI excludes from zero-rating supplies of non-carbonated fruit juice beverages or fruit flavoured beverages (other than milk-based beverages), that contain less than XXXXX% by volume of either,

(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 included in this paragraph.

Paragraph 1(d) specifically excludes milk-based beverages. As such, if a product were a milk based beverage, paragraph 1(d) would not be considered in determining the tax status of a particular product.

However, products from non-animal sources, such as soy beverages and rice beverages are not considered milk or milk-based beverages for purposes of the ETA, and as such, it is necessary to consider paragraph 1(d) when making a determination as to the tax status of a particular product.

As the Product is fruit flavoured and only contains XXXXX% fruit juice, and is not a milk-based beverage, it is excluded from zero-rating by virtue of paragraph 1(d) and is therefore taxable at the rate of 5% GST or 13% HST, where applicable, pursuant to section 165 XXXXX.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-2560. 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,

Tim Myers
Technical Policy Advisor
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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