12 February 2008 GST/HST Interpretation 96726 - Distinction between small and large seeds for GST/HST purposes

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 XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to paragraph 97 of GST/HST Memorandum 4.3, Basic Groceries (Paragraph 97).

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 want to know whether the word "these", in the first sentence of Paragraph 97, refers only to sweetened baked goods and if it does, then how can the supply of a combination of sweetened and unsweetened baked products totalling six or more is zero-rated under the ETA?

In addition, you want to know the tax application to the following scenarios:

(a) Is a sale of two bread rolls, two muffins, and two doughnuts from a grocer's bulk bins constitute a zero-rated supply of six single servings of "these" goods, and thus be zero-rated?

(b) Is a doughnut shop sale of two pieces of pie and four bagels zero-rated?

Interpretation Given

The legislative provision which is the basis for Paragraph 97 and its underlying policy position, is paragraph 1(m) of Part III of Schedule VI. It 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 of 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 states:

"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 totalling six or more (for 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 includes cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or "similar products".

It is our position that unsweetened bread products, are "similar 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.

The CRA considers each package, whether prepackaged prior to the sale, or packaged by the customer or vendor at the time of the 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 included in paragraph 1(m) of Part III of Schedule VI.

In the case of a grocery store where the customers selects and packages items themselves from self serve trays and bins, notification could be placed at the location where the product is obtained in order to provide information to customers should they want to package the items together in one package/box and ensure the zero-rating of six or more baked goods.

Scenario (a)

There are two differences between the first scenario you have presented and the example in Paragraph 97. The first is that bread rolls are substituted for bagels and the second is that the seller is a grocery store instead of a doughnut shop. Substituting bread rolls for bagels will not affect the tax status of the supply as both are zero-rated unsweetened bread products. Also, whether the seller is a doughnut shop or a grocery store will not affect the tax status of the supply.

Where two bread rolls, two muffins, and two doughnuts from a grocer's bulk bins are supplied in separate packages, each package is considered to be a separate supply. Thus, the supply of two bread rolls will be zero-rated but the supply of the two muffins, and the supply of the two doughnuts will be taxable. A sale of the above items from the grocer's bulk bins constitutes a zero-rated supply where they are supplied together in one package.

Scenario (b)

Pie is listed in the preamble to paragraph 1(m) of Part III of Schedule VI. If the two pieces of pie are supplied in a separate container (e.g., a plastic clamshell) from the four bagels, then there would be two separate supplies. The supply of the two single servings of pie (whether supplied together in one package or separately each in its own package) is taxable and the supply of the four bagels is zero-rated.

If however, the two pieces of pie are single servings, as stipulated in the provision, and are supplied in the same package with the four bagels, then paragraph 1(m) of Part III of Schedule VI will apply to zero-rate the supply.

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 613-952-9585. 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

2008/02/04 — RITS 97492 — XXXXX's Entitlement to Input Tax Credits