14 January 2000 GST/HST Interpretation 7905/HQR 0001511 - Chocolate Covered Biscuits

Dear XXXXX

Thank you for your inquiry in December, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of chocolate covered biscuits.

Interpretation Requested:

You requested an interpretation of whether certain chocolate covered wafers would be considered to be "cookies" or "candies, confectionery that may be classed as candy, or any goods sold as candies ...".

We studied several products in the marketplace, but for the purposes of this discussion, we will focus on two particular products; XXXXX[.] The XXXXX are described as follows:

•   The outer package is a plastic bag which has a transparent window allowing the consumer to view the product inside.

•   The package contains XXXXX individually wrapped XXXXX portions each containing two bars.

•   Total package weight is XXXXX.

•   Each portion is wrapped in foil and surrounded by a paper ring, on which is printed all the product information. The product identifies itself as "biscuits".

•   XXXXX.

The XXXXX is described as follows:

•   The outer package is a plastic bag which has a transparent window allowing the consumer to view the product inside.

•   The package contains XXXXX individually wrapped XXXXX portions each containing two bars.

•   Total package weight is XXXXX.

•   Each portion is wrapped in foil and surrounded by a paper ring on which is printed all the product information. The product identifies itself as "candy".

•   XXXXX.

Further examination reveals that both products are composed of two attached rectangular pieces (bars) consisting of several layers of a crispy wafer and chocolate cream, covered with a milk chocolate coating. Visually, the products seem indistinguishable.

Interpretation Given:

We studied these and similar products to determine if the exclusions from zero-rating contained in paragraphs 1(e) or 1(m) of Part III of Schedule VI to the Excise Tax Act (ETA) would apply.

As you know, paragraph 1(e) excludes from zero-rating, supplies of candy, confectionery that may be classed as candy, or any goods sold as candies, whether naturally or artificially sweetened. Whereas, paragraph 1(m) excludes from zero-rating, supplies of sweetened baked goods where they are packaged for sale to consumers in quantities of less than six items or are sold as single servings in quantities of less than six.

The XXXXX product is labelled and marketed as candy, and consumers understand they are purchasing candy. Its product placement in the marketplace is with other candy or confectionery products.

In the case of XXXXX, the exclusion of paragraph 1(e) of Part III of Schedule VI to the ETA applies, resulting in the supply of the product being taxable at 7%/15%.

XXXXX, although packaged in a similar format and containing similar ingredients, are labelled as "biscuits" and are treated by the retailer as a sweetened baked good, hence a zero-rated supply under paragraph 1(m).

We would ordinarily treat a product as a zero-rated supply pursuant to paragraph 1(m), whenever the product is represented within the marketplace as a biscuit or cookie. That is, the product is stocked with other products that are biscuits/cookies and/or the understanding of the recipient is that he/she is purchasing a biscuit/cookie. In addition, the product must also display the following characteristics:

1. The product is prepackaged or sold in multiples of more than five single servings each of which weighs less than 230 grams.

2. The packaging is similar to the packaging of other supplies of cookies.

3. The product is labelled as a "biscuit" or "cookie".

Notwithstanding that the product is labelled as a biscuit, the XXXXX (and similar products) would be considered a sweetened confection since its composition and packaging is similar to other supplies of candies and confections. The XXXXX could easily be placed amongst, represented and sold in the marketplace with supplies of candies and confections.

Manufacturer packaging and marketing of their products, hence consumer identification within the marketplace can be adaptable. This interpretation relies on whether the manufacturer wishes to have its product identified as a cookie or a candy bar. For instance, if XXXXX were to alter the packaging and marketing position of its product such that consumer perception of the XXXXX changes to that of a cookie, then it would qualify for zero-rated status.

The Canada Customs Revenue Agency (CCRA) has previously taken the stance that the packaging and placement of the product within the marketplace is a key determinant of tax status. When packaged in a similar manner and placed amongst cookies, the CCRA has applied paragraph 1(m). When packaged in a similar manner and placed amongst candies, the CCRA has applied paragraph 1(e).

The foregoing comments represent our general views with respect to the subject matter of your letter. 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 Kevin Smith at (613) 952-9218.

Yours truly,

J.A. Venne
Director, General Operations and Border Issues Division
Excise & GST/HST Rulings Directorate