9 November 2000 GST/HST Interpretation 8436 - Lecithin Product

Dear Sirs:

Thank you for your facsimile letter of November 12, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of a lecithin product. In your letter, you stated that your company is selling a product called lecithin. Your company sells a granulated version to a health food retail outlet. Your health food customer in turn sells the product, in the same format, to consumers. The consumers may use this solely as a cereal, sprinkle it on another cereal, or use it for baking in bread or in a drink (i.e. juice).

Interpretation Requested

1. Where lecithin is sold in a powdered format for a supplemental beverage (e.g. sports drink/nutritional drink) would it be zero-rated for GST/HST purposes?

2. As the lecithin product sold is in granulated format and can be consumed as a cereal, sprinkled on top of another cereal or placed in a juice, how would this be rated?

3. How does the Canada Customs and Revenue Agency ("CCRA") define supplement?

Interpretation Given

In accordance with GST/HST Memoranda Series Section 1.4, a ruling can only be issued where reference can be made to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions, and relevant documentation such as invoices, contracts, prices, and other pertinent agreements. When all of the relevant facts and documentation are not provided, an interpretation may be issued. We are therefore pleased to issue to you an interpretation which will elaborate on how the GST/HST applies to the questions raised in your facsimile letter.

Generally, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the GST rate of 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%. (Section 165 of the Excise Tax Act.)

Section 1 of Part III of Schedule VI to the Excise Tax Act ("ETA") provides zero-rated status to food or beverages supplied for human consumption, including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages unless the food or beverages are specifically excluded from zero-rating under the provisions of paragraphs 1(a) to 1(r) of Part III of Schedule VI to the ETA.

Powdered dietary supplements that are ingredients for food, or mixed with water or other fluids to form a beverage (other than a beverage described in paragraph 1(d) of Part III of Schedule VI to the ETA) are zero-rated. All other powdered dietary supplements are taxable at 7% or 15%. (GST/HST Memorandum Series, Chapter 4.3 Basic Groceries, par. 18.) Where the dietary supplement is supplied in liquid form, as a beverage, it falls under the provisions of paragraph 1(n) of Part III of Schedule VI to the ETA. (Supra, footnote 2, par. 19.)

Paragraph 1(d) of Part III of Schedule VI to the ETA provides that supplies of non-carbonated fruit juice beverages or fruit-flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of

(a) a natural fruit juice or combination of natural fruit juices, or

(b) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state, or goods that, when added to water, produce a beverage included in this paragraph are taxable at 7% or 15%. (Supra, footnote 2, par. 35.)

Paragraph 1(n) of Part III of Schedule VI to the ETA provides that supplies of beverages (other than unflavoured milk), or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding are taxable at 7% or 15%, except

(a) when prepared and pre-packaged specially for consumption by babies,

(b) when sold in multiples, pre-packaged by the manufacturer or producer, of single servings, or

(c) when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving. (Supra, footnote 2, par. 72.)

It is the CCRA's position that dietary supplements are not consumed to alleviate hunger as are foods traditionally considered basic groceries. Dietary supplements are consumed to supplement deficiencies in a person's diet. Dietary supplements are supplied in various formats - made from synthetic or natural ingredients and produced in tablet, pill, capsule, or granulated or powdered form, and commonly sold by pharmacies, and health food shops. Examples include alfalfa, yeast, ginseng, lecithin, bee pollen, seaweed or fibre produced in tablet, pill and capsule form as well as in powdered and liquid form. (Supra, footnote 2, par. 16.)

Enclosed is a copy of GST/HST Memorandum Series, Chapter 4.3 Basic Groceries, containing further information with respect to supplies of basic groceries.

The foregoing comments represent our general views with respect to the subject matter of your letters. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-2560.

Yours truly,

Richard Aronoff
Goods Unit
Excise and GST/HST Rulings Directorate
Canada Customs and Revenue Agency