19 November 1998 GST/HST Ruling HQR0001320 - Application of the GST/HST to the Supply of Energy Bars

Dear XXXXX

Thank you for your letter of August 19, 1998, (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of XXXXX energy bars.

Statement of Facts

1. XXXXX has introduced XXXXX to the Canadian market.

2. The Bars come in XXXXX flavours: XXXXX[.]

3. The Bars qualify as nutritional supplements, but not meal replacements, under the regulations to the Food and Drugs Act.

4. The Bars are marketed towards active, healthy individuals who may use it as a source of energy and nutrition. The marketing of the Bars emphasizes their key attributes (e.g., their value as a source of energy and nutrition and XXXXX[.]

5. The Bars are to be sold through various retail channels including sporting goods stores, supermarkets and grocery and convenience stores.

6. The XXXXX main ingredients in the XXXXX[.]

7. The three main ingredients in the XXXXX[.]

9. The Bars are advertised as XXXXX[.]

10. Bars are sold individually from merchandising cartons. Relevant marketing literature indicates a suggested retail price of XXXXX[.]

Rulings Requested

Supplies of the Bars are zero-rated under section 1 of Part III of Schedule VI.

Ruling Given

Based on the facts set out above, we rule that supplies of the Bars are taxable at 7% (or 15% where the supplies are made in a participating province).

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%, to the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate[.]

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% (or 15% where the supplies are made in one of the provinces participating in the HST). Nevertheless, "zero-rated" supplies of goods and services are subject to tax at 0%. A zero-rated supply is any supply included in Schedule VI to the Excise Tax Act.

Section 1 of Part III of Schedule VI, entitled "Basic Groceries", zero-rates supplies of food or beverages for human consumption, and many ingredients mixed with or used in the preparation of such food or beverages, unless one of the exceptions set out in paragraphs 1(a) through 1(r) applies.

Paragraph 1(e) excludes supplies of "candies, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners". Further, paragraph 1(l) excludes supplies of "fruit bars, rolls or drops or similar fruit-based snack foods".

In our view, supplies of the chocolate flavoured Bars fall under paragraph 1(e), and supplies of the fruit flavoured Bars fall under either paragraph 1(e) or paragraph 1(l). Consequently, supplies of the Bars are excluded from the application of section 1 of Part III of Schedule VI and are therefore subject to tax at 7% (or 15% where they are made in a participating province).

Should you have any further questions or require clarification on the above matter, please do not hesitate to call me at (403) 231-4104.

Yours truly,

John W. Smith
Goods Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate