28 March 2001 GST/HST Ruling 26863 - Application of the GST/HST to Peanut Butter Flavoured Diet Bars

Dear XXXXX:

This is in regard to a facsimile message of February 9, 2000, from your firm which was initially sent to our XXXXX TIS Center, but was subsequently transferred to our offices for direct reply. Your firm asked about the application of the Goods and Services Tax ("GST")/Harmonized Sales Tax ("HST") to the XXXXX peanut butter flavour of the XXXXX Bar ("bars"). Our comments are set out below.

Please accept our apologies for the delay in replying to your letter.

Statement of Facts

Our understanding of the facts of this case as follows:

1[.] XXXXX. sells the bars, which are used in the XXXXX Diet plan.

The XXXXX Diet is a low carbohydrate regime which promotes weight loss through the process of lipolysis. A low carbohydrate diet stimulates lipolysis, which is the burning of stored body fat. Further, during lipolysis, appetite suppressing ketones are released into the bloodstream, reducing hunger, thereby making dieting somewhat easier.

2. The ingredients in the bars include isolated soy protein, peanuts, lecithin, and cocoa butter.

Ruling Requested

Is the XXXXX peanut butter flavoured bar zero-rated as a basic grocery, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("the Act")?

Ruling Given

Based on the facts set out above, we rule that the XXXXX peanut butter flavoured bar is taxable at the rate of 7% GST (or 15% HST, as applicable).

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

Explanation

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 many 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.

Paragraph 1(e) excludes from zero-rating supplies of candies, confectionary that may be classed as candy, or any goods sold as candy, 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.

Our review of the material describing the XXXXX peanut butter flavoured bar leads us to conclude that they are taxable at 7% (or 15% HST, as applicable) because they are excluded from zero-rating pursuant to paragraph 1(e).

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,

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