22 November 2001 GST/HST Interpretation 15318 - Juice with Fermented Agents Added

Dear XXXXX

Thank you for the facsimile of November 12, 1999, from the president of XXXXX at the time, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to fresh juice with yeast or other fermenting agents added. We note from the facsimile that your XXXXX would also like to know whether the supplier of such a product would be deemed to be a manufacturer of a finished good by adjusting the raw juice as shipped, for purposes of Part IV of the Excise Tax Act (the "Act"). We understand that concerns expressed in the fax regarding XXXXX respecting u-brews and u-vins have been resolved and do not require a response.

The following addresses only the GST/HST implications of your enquiry. A separate response with respect to the issue of whether a supplier of the product you have described is considered a manufacturer for purposes of Part IV of the Act will follow. You may contact Mr. Bill Gray, Manager, Excise Taxes and Special Levies Unit at 613-952-0178 for further information on that matter.

Companies that sell fresh juice usually receive a shipment of juice and they will add "yeast or other fermenting agents" to stabilize the product. They will chill the product to ensure that no fermentation occurs. The product is then shipped to distributors which sell it to customers. The customers would then take the product and let it "warm-up", whereupon fermentation occurs. The customer may only have to stir the product to ensure proper mixing.

In accordance with GST/HST Memoranda Series Section 1.4, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transaction undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the supply described in your letter.

Interpretation Requested

What is the GST/HST status of the supply of the "fresh juice" product made by the companies to distributors where the companies have added yeast or other fermenting agents and where the product is chilled to ensure that no fermentation occurs?

Interpretation Given

Based on the information provided, we offer the following interpretation:

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% (or 15% where the supplies are made in one of the provinces participating in the HST). However, "zero-rated" supplies of goods and services are subject to tax at 0%. A zero-rated supply is any supply included in Schedule VI to the Act.

Section 1 of Part III of Schedule VI to the Act zero-rates supplies of food or beverages for human consumption ("basic groceries") and sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, unless one of the exceptions set out in paragraphs 1(a) through 1(r) applies.

Generally, to be considered a beverage, a product must be suitable for drinking as is (i.e. potable), or when added to a potable liquid such as juice or water. Furthermore, the product should be consumed for enjoyment or to quench thirst.

In our view, juice with a fermenting agent added is not potable as is, but rather is used, for example, in the vintage of wine. It is not considered a beverage because the product is chilled and the fermentation process has not yet begun. However for GST/HST purposes, the product is considered an ingredient used in the preparation of a beverage. Therefore, the product in question, is zero-rated pursuant to section 1 of Part III of Schedule VI to the Act, if there is clear evidence that the product is sold to the customer prior to the beginning of the wine making process, that is, before the product has started to "warm-up".

Please note that the CCRA Notice 91, dated February 26, 1999 "Information Regarding "Brew on Premises" Operators" (copy attached) is still valid for determining whether GST at 7% would apply to the supply of this product in the scenarios described in that notice.

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 Canada Customs and Revenue Agency 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 me at (613) 954-5124.

Yours truly,

Gabrielle Nadeau
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate