23 November 2000 GST/HST Ruling 32026 - Application of GST/HST to Wine Kits

Dear XXXXX:

This is in reply to your letter of June 5, 2000, to Ms. Allyson Trattner on the above-noted subject. Specifically, you are inquiring about the application of the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") to a supply of wine kits for home use, containing ingredients to make wine, as well as labels, corks and shrink capsules. You supply these wine kits to customers through your retail store. After reviewing all pertinent information in this case, we are able to provide you with our comments, which are set out below.

Statement of Facts

Our understanding of the facts of this case is as follows:

1. XXXXX manufactures wine making kits for home use.

It operates a fruit juice processing and packaging plant, producing its own brands, as well as private label brands for other Canadian distributors. It also operates a retail store, through which these kits can be purchased. XXXXX is a GST/HST registrant.

2. The particular kit in issue consists of a pouch containing a mixture of grape juice and grape concentrate, a packet of wine yeast, a packet of ascorbic acid, a packet of sodium or potassium metabisulphate, a packet of fermentation supplement and mentonite, a packet of betonite fining agents and a container of isinglass fining agents. The kit also contains a packet of oak chips, 30 wine labels, 30 corks and 30 shrinkable capsules.

3. XXXXX advises that it produces this wine kit for retail in the "30-30-30 format" (that is, a wine kit which includes 30 each of labels, corks and capsules) for the convenience of customers.

4. XXXXX provided pricing information on these wine kits to the Canada Customs and Revenue Agency ("the Agency") in a letter dated XXXXX. The cost of 30 corks is $1.31, 30 labels is $0.53 and 30 shrink capsules is $0.45, for a total value of $2.29. XXXXX sells the complete kit (i.e. ingredients and labels, corks and shrink capsules) in its store for a retail price ranging from $40.00 to $80.00, depending on the mixture of grape juice versus grape concentrate which is included in the kit. Therefore, the combined cost of the labels, corks and shrink capsules ranges from 2.86% to 5.72% of the retail price.

5. In XXXXX requested, and obtained, advice on a similar supply from the Excise and GST/HST Rulings Directorate in Ottawa. In that particular case, the wine kit consisted of ingredients and 30 labels. The complete wine kit retailed for approximately $40.00, with the value of the labels being approximately 40 cents. In a letter dated XXXXX, on Case No. XXXXX the Agency advised that the supply in issue was a zero-rated supply of a kit containing ingredients to make wine.

Ruling Requested

Is the supply by XXXXX of this particular wine kit for home use, containing ingredients to make wine and 30 each of labels, corks and shrink capsules subject to GST/HST at the rate of zero percent (i.e. "zero-rated"), pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("the Act")?

Ruling Given

Based on the facts set out above, we rule that the supply of this particular wine kit by XXXXX to customers in its retail store would be a zero-rated supply for GST/HST purposes, pursuant to section 1 of Part III of Schedule VI to the Act. This particular wine kit is considered to be a single supply of ingredients to make wine. The presence of the labels, corks and shrink capsules does not alter the essential character of the main supply, which again, is considered to be a kit containing ingredients to make wine. Please note, however, that if the value of the labels, corks, shrink capsules, or any other taxable elements were to be significant in relation to the value of the kit, the kit would be considered to be a taxable supply.

Explanation

Section 1 of Part III of Schedule VI to the Act provides that supplies of food or beverages for human consumption are zero-rated, with the exception of specified foods and beverages which remain taxable at 7% or 15%. Section 1 of Part III of Schedule VI to the Act is reproduced, in part, below.

"1. Supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), other than supplies of [...]."

The application of this provision to the supply of wine kits for home use was clarified in a Notice issued by the Agency, dated February 17, 1999, titled "Information regarding 'Brew on Premises' Operators" ("the Notice"). The relevant portions of the Notice are set out below.

"1. Sales of wine and beer making kits for home use containing ingredients only are zero-rated (i.e. taxed at 0%). ...

2. Sales of wine and beer making kits that contain both ingredients and any apparatus, equipment, or materials, such as a container with valves for the purpose of brewing or fermenting the product in the container are subject to GST at 7%."

Further, to determine which of these Paragraphs of the Notice applies to wine kits, reference must be made to Agency Policy P-077R, titled "Single and Multiple Supplies." That is, by applying Policy P-077R, one can determine if a wine kit is a single supply of ingredients, which is zero-rated, pursuant to Paragraph 1 or whether it is not such a supply, and, thus, would be taxable at 7% or 15%, pursuant to Paragraph 2.

Analysis pursuant to Policy P-077R focuses on three key questions and these are considered in this case, as follows:

1. If the recipient did not receive all of the elements, would each element, in itself, and in the context of this transaction, be of any use to the recipient? In this case, the answer would be no, as labels, corks and shrink capsules probably have no particular use if a person is not making wine. This indicates a single supply.

2. Is the provision of a particular element contingent on the provision of another element?

In this case, due to the all-inclusive packaging format, the recipient has to buy the labels, corks and shrink capsules to get the ingredients to make wine. This indicates a single supply.

3. Is the recipient made aware of the specific elements that are part of the package? In this case, the purchaser is probably primarily concerned with buying the ingredients to make wine and probably pays less attention to the purchase of the labels, corks and shrink capsules. This indicates a single supply.

The foregoing analysis indicates that the wine kit sold by XXXXX is a single supply of ingredients. The mere inclusion of non-food items of insignificant or negligible value, such as labels, corks and shrink capsules, does not alter the essential character of the supply, which is that of ingredients to make wine. Therefore, as a single supply of ingredients, the kit is zero-rated, pursuant to section 1 of Part III of Schedule V to the Act.

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 our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9585.

Yours truly,

Pauline Greenblatt
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate