6 September 2001 GST/HST Interpretation 35865 - Application of Tax to Chocolate Bars for Fondue and Baking

Dear XXXXX:

Thank you for your letter of April 25, 2000, (with attachment) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the prospective supply of bars of chocolate. Our comments are set out below.

In accordance with section 1.4 of Chapter 1 of the GST/HST Memoranda Series, an application ruling can only be issued in respect of a clearly defined fact situation of a particular person. Rulings are issued upon request where the person has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of the services or properties 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 provide you with the following interpretation.

You have provided us with the following information:

Information Provided

1. You are planning to open a chocolate bar manufacturing plant in XXXXX (near XXXXX), XXXXX that would mainly produce chocolate bars to be used for fondue and baking.

2. The plant will prepare the product (i.e. fondue bar) from a mixture of semi-sweet and milk chocolate. The initial product has to be melted to 45-50 degrees Celsius to ensure proper crystallization of the components. The temperature of the mixture then

has to be brought to an average temperature of 30 degrees Celsius to be moulded in the desired format. At this stage almonds can be added if needed. The product is then dropped into moulds, cooled to 5 degrees Celsius in a refrigerator, unmoulded and wrapped.

3. The bars are exclusively made from pure milk chocolate. You intend generally to sell these bars as baking chocolate in a format of XXXXX grams.

4. The industrial chocolate used will be XXXXX.

5. On the label, one can find the following indications:

•   real milk chocolate with roasted almonds for fondue or real milk chocolate for fondue

•   recipe for two servings of chocolate fondue:

XXXXX 35% cream

XXXXX chocolate (with or without almonds)

fresh fruits

Slowly warm up cream. Add chocolate in small pieces. Mix until chocolate is completely melted. Keep warm with a candle.

6. You also enclosed a sample wrapper that could be used. The wrapper carries the following information:

On the front of the label:

•   The weight of the bar - XXXXX

•   The price - XXXXX

•   The message XXXXX

•   XXXXX

•   All of the above text messages are provided in English and French

•   Prominently displayed is the name of an organization "XXXXX XXXXX and the phrase XXXXX

•   The website for the group XXXXX

On the back of the label:

•   The fondue recipe described above

•   XXXXX

•   The address of the organization featured on the front is enclosed in a box: XXXXX

•   the phrase "Made in Canada" along with a Maple Leaf symbol

•   A list of ingredients and allergy information

•   With the exception of the address, all the information is provided in English and French

Interpretation Requested

You are asking us to confirm that the supply of the above-described bars of chocolate is considered not taxable under the GST/HST.

Interpretation Given

Section 1 of Part III of Schedule VI to the Excise Tax Act provides for a zero-rated tax status for supplies of "basic groceries" and exclusions from zero-rating in paragraphs (a) through (r). In particular, paragraph 1(e) excludes taxable confectionery chocolate. This provision is set out (in part), below:

"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), other than (in part) supplies of ...

(e) 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;"

Fondue chocolate is packaged and promoted in a manner which is generally different from that used for confectionery chocolate. For example, where labeling promotes the

consumption of the product in bar form, the bar may be regarded as taxable confectionery chocolate.

Fondue chocolate is generally packaged in bars (weighing at least 170 g) and labeled differently from taxable confectionery chocolate bars. You intend to sell your product in bars weighing XXXXX grams each.

Fondue chocolate is found in the cooking ingredient aisles of grocery stores. Based on the sample wrapper that could be used that you submitted, your bars will be sold by fund-raising groups. This approach is consistent with the method used to supply taxable confectionery chocolate.

GST/HST Policy Statement P-079R, which establishes the Canada Custom and Revenue Agency's ("CCRA") policy on the supply of fondue chocolate, is attached. Please note that while the policy addresses the situation where the bars are purchased from a manufacturer, relabeled and sold, we would consider that where the bar was manufactured and then labeled and sold, to be covered by the policy. For your information, I am enclosing a copy of our current publication, Ch. 4.3 "Basic Groceries", since Memorandum 300-3-3, which you referred to in your letter, is now obsolete.

The foregoing comments represent our general views with respect to the subject matter of your letter. 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. I am also enclosing a copy of this publication.

Should you have any further questions or require clarification of the above matter, please do not hesitate to contact me at (613) 952-9585.

Yours truly

Pauline Greenblatt
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate