2 March 2001 GST/HST Ruling 32453 - Tax Status of Bar and Shake

Dear XXXXX:

This is in reply to your letter of September 12, 2000, to XXXXX of our XXXXX Tax Services office. Your inquiry has been transferred to this office for direct reply. You asked about the tax status of two products, the XXXXX Bars ("bars") and the XXXXX Shakes ("shakes"). Our comments are set out below.

Statement of Facts

Our understanding of the facts is as follows:

1. An American company, XXXXX, manufactures a group of weight management products, which it imports into Canada. These are protein-rich products formulated to enhance the body's fat-burning potential by increasing the process of thermogenesis. The theory is that more energy is expended burning high quality protein than carbohydrates, so consumption of these food products promotes weight loss.

2. The ingredients in the bars include cocoa powder, cocoa butter, casein, whey and soy proteins, plus the XXXXX and XXXXX. The bars are available in two flavours - chocolate fudge XXXXX and chocolate raspberry XXXXX. They are advertised as a "high protein nutritional snack" and are available in singles or boxes of 15.

3. The ingredients in the shakes include casein and whey proteins, plus the XXXXX and XXXXX. They are available in two flavours, chocolate and strawberry. They are advertised as a "meal alternative" or a "snack" and are available in singles or packs of 30. Directions for use on the package indicate that one packet of the shake is to be mixed with 16 ounces of cold water.

Rulings Requested

1. Are the bars zero-rated as basic groceries, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("the Act")?

2. Are the shakes zero-rated as basic groceries, pursuant to section 1 of Part III of Schedule VI to the Act ?

Rulings Given

1. Based on the facts set out above, we rule that the chocolate fudge XXXXX and chocolate raspberry XXXXX bars are taxable at the rate of 7% GST (or 15% HST, as applicable).

2. Based on the facts set out above, we rule that the strawberry flavoured shake is taxable at the rate of 7% GST (or 15% HST, as applicable) and the chocolate flavoured shake is zero-rated 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 the supplies indicated in paragraphs (a) to (r) of that section.

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

Paragraph 1(d) excludes non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk based beverages, that contain less than 25% by volume of

(i) a natural fruit juice or combination of natural fruit juices, or

(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state, or goods that, when added to water, produce a beverage included in this paragraph.

A review of the material submitted describing the bars leads us to conclude that the bars are taxable at 7% GST (or 15% HST, as applicable), because they are excluded from zero-rating pursuant to paragraph 1(e).

A review of the material submitted describing the shakes leads us to conclude that the strawberry shake is excluded from zero-rating pursuant to paragraph 1(d). When mixed with water, the strawberry shake is a non-carbonated fruit flavoured beverage that contains less than 25% by volume of natural fruit juice.

However, as no exclusions apply to the chocolate flavoured shake, it is zero-rated pursuant to section 1 of Part III of Schedule VI to the Act.

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 chocolate shake is zero-rated, it is a non-taxable importation. However, as the bars and the strawberry shake are excluded from Part III of Schedule VI, they would be 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 transaction(s) 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