20 January 1997 GST/HST Interpretation 11865-1 - Tax Status of the Supply of Meal Supplements in a Medically Supervised Weight Reduction Program

This is in answer to your memo to Enikö Vermes on September 5, 1996 regarding the supply of the XXXXX product. GST Rulings and Interpretations provided you interpretations on this case on March 31, 1995 and on March 5, 1996. The registrant provided you with additional information on the product and the XXXXX. You want to know whether the product may be zero-rated where provided separately and obtain confirmation that the program is a single supply of a service and subject to tax at 7%.

Our understanding of the facts provided by you are as follows:

1. XXXXX supplies the XXXXX for an all-inclusive fee of XXXXX which is not detailed by program component.

2. The program is a weight reduction program that is not available without medical supervision and that consists of a variety of goods and services.

3. Individuals may obtain the XXXXX without the XXXXX supplement. However, these individuals would have previously received both the program and supplement.

4. Individuals may obtain only the XXXXX supplement. These would be primarily individuals who had previously completed the XXXXX Program.

Previous interpretations

In 1995 and 1996, GST Rulings and Interpretations indicated that the XXXXX constituted a single supply and was subject to 7% GST. We also indicated to you that the XXXXX may be zero-rated but that you should obtain more information in this regard.

Questions

XXXXX sent you a sample of the product as well as nutritional information regarding the same. Based on this information, you want to know if the product may be zero-rated.

In addition, XXXXX now argues that the meal supplement is the predominant element included in the program (representing around 80% of the costs of providing the program) and that the program should therefore be zero-rated, or that the supplement provided within a program should be zero-rated.

Answers

1) Based on the nutritional information provided and on the marketing of the product, the XXXXX is considered as a meal replacement and is zero-rated where provided by itself and not within a weight reduction program. The promotional material states that this product is a meal replacement for weight reduction. It is to be mixed with water. Meal replacement products include meal replacement powders consumed by persons in lieu of a meal.

2) The fact the cost of the product may represent around 80% of the cost of the program is not in itself conclusive in determining the nature of the supply (or the supplies) being made.

In this regard, the analysis provided in the March 31, 1995 letter sent to XXXXX of your office by Enikö Vermes is still valid.

The program constitutes a single supply of which the nature has to be determined. Based on the description of the program, I believe that XXXXX where providing the program, is making a supply of a service and is not making a supply of property. The objective of the program is to help the customers to reduce their weight by participating in the program. In the course of this program, the customers are provided with the supplement, instruction, counseling, nutrition education and physical activity advice.

Based on the above, I believe that the agreement between XXXXX and their customers is for the supply of a service and not a supply of property. In this context, the main intent of the customers is not to acquire a product; it is to acquire a service which includes the provision of the product.

Again, the proportion of the costs attributable to each component of the supply is not to be used to determine the nature of that supply, although it is a factor that must be taken into account.

I hope the above will be useful to you. If you wish to discuss this issue further, please contact me at (613) 952-9580.

Serge Bernier
Senior Rulings Officer
Industries Unit
GST Rulings and Interpretations.

Telephone No.: (613) 952-4294
Fax No. (613) 990-1233