15 September 2000 GST/HST Interpretation 7666/HQR0001272 - Application of GST/HST to Products

This is in response to your request of July 27, 1998, on the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of XXXXX products.

Our understanding is as follows:

1. XXXXX is a non-carbonated beverage composed of water, corn syrup, non-fat milk solids, partially hydrogenated soybean oil, soy protein, whey powder, natural and artificial flavourings, gums, stabilizers, vitamins and minerals. The first three ingredients are water, corn syrup and non-fat milk solids.

2. XXXXX is advertised as a nutritious frozen supplement for the healthcare food service industry. A regular serving contains 300 calories, 9 grams of protein, and 19 essential vitamins and minerals.

3. The product information states that XXXXX is made with a blend of milk protein and soy protein.

4. XXXXX is sold in cases of single serving packages. The regular size XXXXX serving is 6 fl. oz (180 ml), while the Junior size serving is 4 fl. oz (120 ml). Both are sold in cases of 50 servings.

5. XXXXX is available in Vanilla, Strawberry, Chocolate, XXXXX flavours.

Interpretation Requested

Is XXXXX a milk-based beverage for purposes of paragraph 1(d) of Part III of Schedule VI to the Excise Tax Act (ETA)?

Interpretation Given

Section 1 of Part III of Schedule VI to the ETA states that 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) are zero-rated, except for the supplies indicated in paragraphs (a) to (r) of that section.

Paragraph (d) excludes non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of

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

(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state.

The Strawberry and XXXXX flavours of XXXXX would be considered to be non-carbonated fruit flavoured beverages that contain less than 25% by volume of natural fruit juices and are subject to paragraph (d) unless XXXXX is a milk based beverage.

A milk-based beverage has milk as a main ingredient. The term "milk" as used in the ETA refers to whole milk, skim milk or partly-skimmed milk. The production and sale of milk is regulated and to be labelled as milk, it must be within the guidelines of the Food and Drugs Act. A milk-based beverage would contain either whole milk, skim milk or partly skimmed milk.

Milk is composed of several components, including water, fats, proteins, carbohydrates, vitamins and minerals. Milk solids are all the components of milk excluding water. Non-fat milk solids are all the components of milk excluding water and the fats. The components of milk may be separated and used as ingredients in preparing food and other beverages. Such ingredients would be derived from milk, but are not considered to be milk, and are not regulated as milk. A beverage that contains a component of milk as an ingredient is not a milk-based beverage.

XXXXX contains non-fat milk solids; it does not contain milk. The distributor of XXXXX, XXXXX, provided a detailed ingredients list for the product. The non-fat milk solids in XXXXX. XXXXX contains one component derived from milk. Therefore, our position would be that XXXXX is not a milk-based beverage, and the strawberry and XXXXX flavours are taxable under paragraph 1(d) of Part III of Schedule VI to the ETA.

The supplies of the vanilla, chocolate and XXXXX flavour in full cases packaged by the manufacturer are zero-rated and supplies of single servings of all flavours of XXXXX are taxable under paragraph 1(n) of Part III of Schedule VI to the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8253.

Jacqueline Russell
Technical Officer