12 February 2008 GST/HST Interpretation 92128 - XXXXX First Nation XXXXX Goods and Services Tax Rebates for First Nations

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 XXXXX concerning the wording of paragraph 97 of the GST/HST Memoranda Series 4.3 (Paragraph 97), and the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of sweetened baked goods.

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.

Interpretation Requested

You would like to know:

1. The application of GST/HST to the supply of a prepackaged box of six doughnuts, plus two doughnuts selected from bulk bins in a grocery store; and

2. An explanation of the wording of the example in Paragraph 97, that the "supply of two bagels, two muffins, and two doughnuts … are zero-rated".

Interpretation Given

Interpretation #1: If a consumer purchases a prepackaged box of six doughnuts and two doughnuts from the bulk bins, the two doughnuts purchased from the bulk bins are taxable at 5% GST or 13% HST.

The prepackaged box of 6 doughnuts and the supply of 2 doughnuts in another package from the bulk bins are considered to be separate supplies. The supply of 2 doughnuts in this scenario is excluded from zero-rating pursuant to paragraph 1(m) of Part III of Schedule VI, as the separate package of two doughnuts sold contains less than six items.

CRA considers each package, whether prepackaged prior to sale, or prepackaged by the customer or vendor at the time of sale to be a single supply. This treatment provides for greater simplicity at the check-out counter as it does not require the cashier to count the number of packages purchased by the consumer, or to total the number of items in all packages purchased in order to determine the tax status of the supply of goods in paragraph 1(m) of Part III of Schedule VI.

In order for the supply of doughnuts from the bulk bins to be zero-rated, 6 or more doughnuts must be packaged together in one package/box (or a combination of the doughnuts and other single servings of sweetened baked goods or similar goods).

Interpretation #2: A supply of two bagels, two muffins, and two doughnuts is zero-rated, based on our interpretation of the application of paragraph 1(m) of Part III of Schedule VI.

Paragraph 1(m) of Part III of Schedule VI states:

"Cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where

(i) they are prepackaged for sale to consumers in quantities of less than six items each or which is a single serving, or

(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six,

but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating;"

Paragraph 97 provides the following example to illustrate the application of paragraph 1(m) of Part III of Schedule VI to supplies including both sweetened and unsweetened baked goods:

"A mixed supply of six or more single servings of these goods is zero-rated. For example, a supply of two bagels, two muffins and two doughnuts, purchased from a doughnut shop (when they are not individually packaged), is considered to be six single servings for the purposes of paragraph 1(m) of Part III of Schedule VI, and therefore zero-rated. If, however, the goods are pre-packaged for sale to consumers individually or in any quantity less than six, the supply is taxable."

The position that the supply of a combination of sweetened and unsweetened baked products, totaling six or more (as an example two bagels, two muffins and two doughnuts), is zero-rated is based on the structure of paragraph 1(m) of Part III of Schedule VI. In the preamble of paragraph 1(m), the list of products that are exceptions to the zero-rating include cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or "similar products".

It is our position that "similar products" include unsweetened bread products and are included in the preamble to paragraph 1(m) of Part III of Schedule VI. As unsweetened bread products are included in the preamble, they count towards the six or more threshold required to zero-rate products under paragraph 1(m) of Part III of Schedule VI.

Using the example from Paragraph 97, a package that is prepackaged for sale to consumers and which contains two bagels, two muffins and two doughnuts contains six baked goods, each of which is a single serving, is zero-rated pursuant to subparagraph 1(m)(i) of Part III of Schedule VI, as the subparagraph provides that such products are an exception to the overall exception in paragraph 1(m).

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9218. 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,

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

2008/03/06 — RITS 92711 — Block Fees Billed by Psychiatrists Relating to Uninsured Services