21 March 2001 GST/HST Ruling 30684 - Tax Status of Bars and Drinks

Dear XXXXX:

This is in reply to your facsimile message of March 16, 2000, which was initially sent to our XXXXX TIS Centre, but was subsequently transferred to our office for direct reply. You asked about the application of the Goods and Services Tax ("GST")/Harmonized Sales Tax ("HST") to XXXXX bars ("bars") and XXXXX drinks ("drinks"). Our comments are set out below.

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

Statement of Facts

Our understanding of the facts of this case is as follows:

1. Several weight management products, XXXXX bars and drinks, are imported into Canada. Information which you provided to us about these products indicates that they are formulated with a precise ratio of protein, carbohydrate and fat that triggers the burning of stored body fat for up to 6 hours after eating, depending on the product. They are advertised as either a meal or a snack.

2. The ingredients in the bars include cocoa, cocoa butter and soy protein and high fructose corn syrup. The bar is available in a chocolate almond fudge flavour and is sold in boxes of 12.

3. The drinks are available in two flavours, dutch chocolate and french vanilla. Ingredients in the dutch chocolate drink include water, fructose, milk protein and cocoa. Ingredients in the french vanilla drink include water, fructose and milk protein. The drinks are packaged in 8 ounce (or 237 ml) cans and sold 6 cans to a carton.

Rulings Requested

1. Are the bars zero-rated as meal replacements, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("the Act") and the administrative policy of the Canada Customs and Revenue Agency ("CCRA")?

2. Are the drinks zero-rated as meal replacements, pursuant to section 1 of Part III of Schedule VI to the Act and the administrative policy of the CCRA?

Rulings Given

1. Based on the facts set out above, we rule that the chocolate almond fudge bar is taxable at the rate of 7% GST (or 15% HST, as applicable).

2. Based on the facts set out above, we rule that the dutch chocolate and french vanilla drinks are zero-rated as basic groceries pursuant to section 1 of Part III of Schedule VI to the Act.

Explanation

Section 1 of Part III of Schedule VI to the Act states that supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or to be used in the preparation of such food or beverages) are zero-rated, except for supplies indicated in paragraphs (a) to (r) of that section.

Paragraph 1(e) excludes from zero-rating supplies of candies, confectionary 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.

Paragraph 1(n) excludes from zero-rating supplies of single servings of beverages (other than unflavoured milk), pudding, flavoured gelatine, mousse, flavoured whipped dessert product, and any other products similar to pudding. There are three exceptions to this exclusion, any one of which will allow the product to remain zero-rated as a basic grocery (unless some other exclusion applies). These exceptions are:

(i) products prepared and prepackaged specially for consumption by babies,

(ii) products prepackaged by the manufacturer in multiples of single servings, or

(iii) individual cans, bottles or packages with a quantity that exceeds a single serving.

Please note that it is the administrative position of the CCRA that a single serving of a beverage is less than 600 ml.

It is the administrative position of the CCRA that meal replacements (bars or drinks) are zero-rated as basic groceries. For the purposes of its administrative position, the CCRA has adopted the definition of "meal replacement" as found in the Regulations to the Food and Drug Act. Further, the CCRA requires that the labeling requirements for meal replacements under the Food and Drug Act and its Regulations must also be met. Pursuant to the definition, a meal replacement has minimum caloric requirements and minimum and maximum fat content and vitamin and mineral requirements.

Our review of the material describing the chocolate almond fudge bars leads us to conclude that they are taxable at 7% GST (or 15% HST, as applicable), because they are excluded from zero-rating pursuant to paragraph 1(e). We can also advise that the bars do not qualify as zero-rated meal replacements.

Our review of the material describing the dutch chocolate and french vanilla drinks leads us to conclude that they are zero-rated as basic groceries pursuant to subparagraph 1(n)(ii). That is, the drinks remain zero-rated as a basic grocery because they are single servings of beverages that are prepackaged by the manufacturer in multiples of single servings; the drinks are sold in 237 ml cans, in cartons containing 6 cans. Also, we do not view the drinks as meal replacements.

As stated in the facts, these products are imported into Canada. Division III of the Act provides that GST/HST is payable on dutiable goods (under the Customs Act) imported into Canada. Section 6 of Schedule VII to the Act provides, in part, that goods included in Part III of Schedule VI (i.e. zero-rated basic groceries) are non-taxable importations. As the dutch chocolate and french vanilla drinks are zero-rated, they are non-taxable importations. However, as the chocolate almond fudge bar is excluded from Part III of Schedule VI, it is taxable on importation into Canada.

These rulings are 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 these rulings 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 transactions for which you requested rulings.

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