21 July 2000 GST/HST Ruling 31478 - Tax Status of Peanut Butter Chocolate Flavour and Chocolate Flavour

Dear XXXXX

Thank you for your letter of May 11, 2000 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the above-noted products.

Statement of Facts

Our understanding of the facts is as follow:

XXXXX has recently launched line extensions to their current XXXXX XXXXX bars in the form of XXXXX bars peanut butter chocolate flavour and XXXXX bars chocolate flavour;

•   They are available in three packaging formats:

1. In cartons of 8 squares sold mostly to retail grocery store customers where the carton is the selling unit;

2. In cartons of 24 squares sold mostly to retail grocery store customers where the carton is the selling unit; and

3. In cartons of 16 squares sold mostly to foodservice vendors and distributors. The carton is a display box from which consumers may help themselves;

•   Each square is individually wrapped and weighs 23 grams;

•   The major ingredients of the peanut butter chocolate flavour are XXXXX XXXXX cereal, XXXXX, peanut butter and icing sugar;

•   The major ingredients of the chocolate flavour are XXXXX cereal, XXXXX, fructose, hydrogenated vegetable oil and chocolate liquor.

Ruling Requested

Is the supply of these new products subject to GST/HST?

Ruling Given

Based on the facts set out above, we rule that:

1. The supply of XXXXX peanut butter chocolate flavour and XXXXX XXXXX chocolate flavour in the 8 and 24 unit formats is zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

2. The supply of XXXXX peanut butter chocolate flavour and XXXXX XXXXX chocolate flavour in cartons of 16 are taxable at 7% GST or 15% HST (where applicable) as they are excluded from zero-rating pursuant to paragraph 1(m) of Part III of Schedule VI to the ETA.

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 ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

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 the HST rate of 15% (where applicable) on the value of the consideration for the supply pursuant to subsections 165(1) and (2) of the ETA. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.

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, other than supplies included in paragraphs (a) to (r).

Paragraph 1(m) of Part III of Schedule VI excludes from zero-rating supplies of:

cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where

(i) they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or

(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six, but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating;

As the supply of XXXXX peanut butter chocolate flavour and XXXXX XXXXX chocolate flavour in cartons containing 8 or 24 single servings is not within the scope of subparagraph 1(m)(i) of Part III of Schedule VI to the ETA, the supply is zero-rated.

Display boxes are not considered to be "consumer packaging" for the purposes of Paragraph 1(m). Display boxes are designed to be opened and set up to create an eye catching display from which the consumer may purchase any number of individual packaged single servings. Therefore, for the purposes of Paragraph 1(m) of Part III of Schedule VI to the ETA, the supply of the display box containing 16 individually wrapped single servings XXXXX (in all flavours, including the original flavour) is taxable at the rate of 7% GST or 15% HST (where applicable).

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,

Roger Tessier CA
Goods Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate