13 January 2000 GST/HST Interpretation 7649/HQR0001255 - The Application of the GST/HST to Snack Bars and

We have reviewed the letter from XXXXX of July 21, 1998, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain supplies of snack bars and seasoned peas.

Fact Scenario 1

1. XXXXX sells XXXXX different types of snack bars made by XXXXX different manufacturers.

2[.] XXXXX treats supplies of XXXXX of the XXXXX snack bars as zero-rated. XXXXX.

3. XXXXX treats supplies of the remaining XXXXX snack bars as taxable at 7%. These bars range broadly in composition. XXXXX.

Fact Scenario 2

1. XXXXX are a snack product made in XXXXX[.]

2. The XXXXX.

3. XXXXX.

You have asked us to discuss the GST as it applies to the supplies of the snack bars and XXXXX.

Snack Bars

It may first be worth noting that the products in issue are examples of a class of food which, for convenience, we shall refer to as "snack bars". Snack bars generally have all or most of the following characteristics:

•   they are fruit or candy flavoured (by "candy" we mean chocolate, caramel, and other typical candy flavourings);

•   they often comprise a mixture of fruit, nuts, seeds, and cereal;

•   they are either naturally or artificially sweetened;

•   they are individually wrapped in single servings, although they may be sold either individually or in multiples;

•   they are usually consumed as snacks; and

•   they may qualify as "nutritional supplements" or "meal replacements" within the meaning of the Food and Drugs Act.

Section 1 of Part III of Schedule VI zero-rates supplies of food, beverages and certain qualifying ingredients, unless one of the exclusions set out in paragraphs 1(a) through 1(r) applies. Several of these exclusions may apply to supplies of the products in issue. In our view, supplies of most snack bars will be excluded from section 1/III/VI by virtue of paragraph 1(e), (h), (l) or possibly (m).

Paragraph 1(e) excludes supplies of:

candies, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners;

This exclusion is arguably intended to apply quite broadly as it applies not only to supplies of candy, but also to supplies of confectionery which may be classed as candy, and supplies of goods which are sold as candy. Further, it applies whether the product in issue is naturally or artificially sweetened. Hence, the exclusion is intended to capture not only supplies of candy, but supplies of anything that is likely to compete with candy in the marketplace.

According to the Canadian Oxford Dictionary, "candy" means, "a confection with a high proportion of sugar, often also including chocolate, nuts, etc."; "confection" means, "a sweet dessert or candy"; "confectionery" means, "candy and other sweets"; "sweet", as a noun, means, "sweet foods, such as pie, cake, chocolate, etc."; and, finally, "sweet", as an adjective, means, "having the pleasant taste characteristic of sugar".

Of course, we cannot rely solely on these definitions in our interpretation of paragraph 1(e), but they serve as a useful starting point. Based on these definitions, we can say that, generally, "confectionery" includes a broad range of sweet foods such as pie, cake, and chocolate, which all have the pleasant taste characteristic of sugar, and "candy" is a specific class of confectionery consisting of those confections with a high proportion of sugar and may include, among other things, chocolate and nuts.

Paragraph 1(h) excludes supplies of:

granola products, but not including any product that is sold primarily as a breakfast cereal;

According to The Canadian Oxford Dictionary, Thumb Index Edition, as a noun, "granola" means "a mixture of rolled oats, nuts, raisins, brown sugar, etc. eaten as a breakfast cereal or pressed into bars ... [from gran- representing GRAIN + -OLA]". "-Ola" is a combining form used to form nouns.

The definition of "granola" refers specifically to rolled oats, which are oat seeds (a particular type of cereal) which have been husked and crushed. However, in our view, the ordinary meaning of granola is broad enough to include not only those mixtures comprising, in part, rolled oats but also mixtures which incorporate other cereal constituents as well.

The ordinary meaning of "granola is arguably less restrictive than the dictionary definition seems to suggest. Consider an assortment of cereal bars each of which consists of an identical mixture of crushed cereal, nuts, raisins, brown sugar, etc., except that the cereal used in each bar (e.g., wheat, rice, rye, oats, barley, corn or sorghum) varies from one bar to another. It is unlikely that an ordinary person would conclude that the cereal bar comprising crushed oats is granola, but the other cereal bars are not. An ordinary person is unlikely to be able to tell the difference between one type of crushed cereal and another and would probably see the type of cereal used in the mixture as insignificant when determining whether a cereal bar is a "granola product" within the ordinary meaning of the words. In other words, an ordinary person would likely regard a bar consisting of a mixture of crushed cereal, nuts, raisins, brown sugar, and other ingredients as a granola product regardless of the type of cereal used in the mixture.

Further, when the wording of paragraph 1(h) was first drafted for FST purposes in 1987 (see paragraph 1(h)/V/III), the exclusion applied to, "products commonly known as granola bars". This wording suggests that the exclusion is intended to apply quite broadly and capture bars commonly known as granola bars regardless whether they are actually granola bars. Even with the revised wording of paragraph 1(h) however, a change of intent seems unlikely. According to the ordinary meaning rule of statutory interpretation, unless the context suggests otherwise, we should construe "granola" according to its ordinary meaning. The ordinary meaning of a word is essentially the meaning it would be given by an ordinary person or a "person in the street". If a snack bar is commonly (i.e., "ordinarily") known as a granola bar, then it is clearly "granola" within the ordinary meaning of the word.

Lastly, if we construe "granola" narrowly such that it excludes mixtures consisting partly of cereals other than oats, then we are left with the uncomfortable conclusion that bars consisting of a mixture of rolled oats, nuts, raisins, brown sugar, etc., would be taxable at the standard rate whereas bars consisting of virtually the same mixture, except that another cereal is substituted for rolled oats, would be zero-rated. There is no apparent rational distinction, and it would be difficult to administer.

On this basis, in our view, supplies of cereal bars which comprise a mixture of cereal, nuts, raisins, brown sugar, and other ingredients fall within the scope of paragraph 1(h).

Note that, to fall under this provision, a snack bar should generally comprise a mixture of ingredients which has been "pressed" into the form of a bar. Highly processed bars in which the ingredients of the bars are processed to such an extent that they lose their character as distinct ingredients would not be considered to be granola bars. However, another exclusion under section 1 may apply, such as paragraph 1(m) which is discussed below.

Paragraph 1(l) excludes supplies of:

fruit bars, rolls or drops or similar fruit-based snack foods;

The exclusion applies to fruit-based snacks in the form of bars, rolls or drops, and similar fruit-based snacks as well. "Fruit-based" implies a mixture of fruit and at least one other ingredient. However snack foods containing 100% fruit in the form of bars also fall within the scope of the provision.

Paragraph 1(m) excludes supplies of:

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

(i) they are packaged 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.

The exclusion applies to a wide variety of sweetened baked goods and "similar products". Many snack bars are baked products that are sweetened. When sold in multiples of less than 6, supplies of sweetened baked goods are a taxable supply at 7% or 15%.

Supplies of snack bars could be subject to other, more specific exclusions when the supply is made in circumstances different from those you described. For example, a supply of a snack bar made by way of sale through a vending machine would be excluded from tax relief under section 1/III/VI by virtue of paragraph 1(p), regardless of whether any other exclusion applies.

Whether a supply of a product falls under one of the exclusions to section 1 is usually a question of fact. In the case of a supply of snack bars, we would have to know, among other things: What is the nature of the bars? What ingredients do they comprise? What are their principal ingredients? How are the bars produced? How are they marketed? What are the circumstances of the sale? Therefore, we cannot provide you with a definitive response for each of the 78 snack bars in issue without a complete depiction of the facts.

It is important to note that, according to our administrative policy on "meal replacements", supplies of meal replacements are unconditionally zero-rated under section 1/III/VI, notwithstanding any of the exceptions discussed above. Consequently, based on this policy, supplies of snack bars which qualify as meal replacements are unconditionally zero-rated under section 1/III/VI.

The XXXXX

Assuming the XXXXX are intended for human consumption, supplies of the XXXXX are zero-rated under section 1/III/VI, unless one of the exclusions set out in paragraphs 1(a) through (r) applies.

Paragraph 1(f) excludes supplies of:

chips, crisps, puffs, curls or sticks (such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls), other similar snack foods or popcorn and brittle pretzels, but not including any product that is sold primarily as a breakfast cereal;

Whether or not supplies of the XXXXX are captured under this exclusion is again a question of fact. The XXXXX are processed, cooked and seasoned in a manner similar to other snack foods excluded under paragraph 1(f). In our view, the XXXXX are similar to other salty or savoury snack foods such as "chips, crisps, puffs, curls or sticks (such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls)". Consequently, in the absence of any compelling evidence to the contrary, supplies of the XXXXX would be excluded from the application of section 1/III/VI by virtue of paragraph 1(f) and are therefore taxable at 7 or 15%.

Alternatively, the XXXXX could fall under the exclusion of paragraph 1(g) which excludes a supply of salted nuts or salted seeds from the application of section 1/III/VI. The list of ingredients include both salt and monosodium glutamate (also a salt). XXXXX could be excluded from zero-rating pursuant to paragraph 1(g) as salted seeds.

Should you have any further questions or require clarification on the above matter, please do not hesitate to call me at (613) 952-9218.

Kevin W. Smith
Goods Unit
General Operations and Border Issues (GOBI)
GST/HST Rulings & Interpretations