20 November 1998 GST/HST Ruling HQR0001324 - Sale of Wine Kits and Brew on Premises Operations

Dear XXXXX

Thank you for your letter of September 2, 1998 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the following supplies:

Statement of Facts

1. XXXXX is a retail store supplying products for making wines on their premises or off premises.

2. XXXXX supplies grape juice concentrates for making wines together with other ingredients and products such as bottles, corks or labels, which the customer uses to make wine on premises. At present, the GST is only charged on the corks included in the package.

3. XXXXX provides consulting and storage services for customers who purchase their ingredients elsewhere. GST is charged on these transactions.

Typical transactions

XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX

Ruling Requested

You have asked if you may continue charging GST in the same manner as described above.

Ruling Given

Based on the information given, we provide the following rulings:

1. Where a XXXXX operator sells individual wine-making kits for use off premises which contain only ingredients (such as grape juice concentrate, yeast and additives), the operator is considered to be making a zero-rated (i.e. taxable at zero percent) supply of basic groceries pursuant to Section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

Sales of home brewing kits composed of both ingredients and equipment or apparatus will attract GST/HST. Therefore if the wine-making kits you sell come with a container that can be used to ferment the wine or any other apparatus, or products such as bottles, corks or labels, together with the ingredients, the supply will be subject to GST at 7% in accordance with subsection 165(1) of the ETA.

2. When charging GST on a "package" whereby the customer purchases the ingredients as well as the service that you provide (consulting and premises on which to make the wine), and other items such as corks, bottles or labels, it is incorrect to charge GST on the corks only. When the supply of ingredients is provided on premises together with the supply of a consulting service and/or use of facilities or any other products, the entire supply is subject to GST at 7% regardless of whether the ingredients are invoiced separately from the service.

3. In situations where you do not sell the ingredients and provide services or the use of facilities to persons who have bought ingredients elsewhere, any amounts invoiced to your customers for these services or facilities is subject to GST at 7%.

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.

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%. For supplies made in these provinces, to the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.

Explanation

According to the information provided, the only zero-rated (taxable at 0%) supply that may be made is the sale of a wine-making kit that is taken away from your establishment by the purchaser and consists of only the zero-rated ingredients as described in transaction number 1 and ruling number 1 above.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9700.

Yours truly,

Fred Adair
General Operations and Border Issues Division Unit
Services and Intangibles Division
GST/HST Rulings and Interpretations Directorate

Analysis

Subject

For home use and also sells wine ingredient kits for use by customers who wish to make wine on premises. Other services include the provision of consulting services and facilities only for clients who have purchased their own ingredients elsewhere and wish to make use of just the service or premises.

Our position is that where ingredients are supplied for use on premises, their is no zero-rating and the entire supply, including any service or facility charge is subject to the GST at 7%. The provision of services or facilities only is subject to GST at 7% as well.

It is not contentious where strictly ingredients are sold for home use. Section 1 of Part III of Schedule VI to the ETA clearly zero-rates these types of kits.

Similarly, it is well settled that kits containing apparatus and equipment along with the ingredients are subject to the GST/HST at either 7% or 15%.

In the case of services provided or the use of facilities granted to a customer where no other supply is made, the issue of whether GST/HST applies at 7% or 15% is not contested.

The arguable point in this case is when a XXXXX sells ingredients on one invoice and the customer also contracts to use the services and facilities of the same operator and a separate invoice is issued or the items are segregated on one invoice.

In our view we have to look at what is really being supplied or what is the primary objective of the customer in these situations. I do not believe that the client is actually desirous of purchasing ingredients or the service by themselves. The goal is to receive an end result utilizing the services, facilities and ingredients as necessary inputs to the desired end supply. This is a supply of wine or perhaps the overall service of being able to make the wine.

If we consider the environment in which the supply will take place (i.e. the XXXXX operator's premises), it seems to me that neither the ingredients or the service and facilities are something that would be purchased on their own and be of any use to the customer at the XXXXX operator's premises. Therefore, I am of the opinion that in situations where the ingredients and services and/or facilities are purchased from the same supplier, we are dealing with a single taxable supply that will attract GST at 7% whether they are separately invoiced or not.

Currently, XXXXX on premises businesses can only operate in Ontario and British Columbia. They are not permitted to operate in the participating provinces as of yet. Therefore, for any supplies that take place on XXXXX premises, the provincial component of the HST is not a factor.